US Faces Potential Economic Crisis as Debt Limit Deadline Approaches
The United States is facing a potential economic crisis as Treasury Secretary Janet Yellen warned that the government may run out of money to pay its bills as early as June 1st.[0] In a letter to lawmakers, Yellen stated that it is highly likely that Treasury will no longer be able to satisfy all of the government's obligations if Congress has not acted to raise or suspend the debt limit by early June. This warning came hours after President Joe Biden delivered a grim assessment on the state of negotiations during his remaining hours in Japan.[1]
[2] She has said it could unleash a global economic recession and financial upheaval, as well as hurt millions of Americans who rely on federal government payments, including Social Security recipients, federal workers, and Medicare providers.[3] In addition, a default would seriously impact the global economy, which relies on the relative stability of the United States.[4] According to the Committee for a Responsible Federal Budget, the rise in interest rates and the cessation of investment in Treasury securities would have an impact on individuals' credit cards, car loans, and other financial matters.[5]
In April, the House approved a debt limit increase that contained a set of spending reductions, but both Biden and Democratic leaders Hakeem Jeffries and Chuck Schumer have all declined to support them. Despite the ticking clock, the Senate has not yet passed any corresponding legislation.[6] The House Republicans approved a spending bill on Wednesday that would raise the debt ceiling while placing a ten-year limit on federal spending. Among other measures, the bill narrowly passed in the House and would roll back the energy tax credit of the Biden administration while imposing specific work requirements on federal social programs.[5]
Failure to raise the debt limit could cause “severe hardship to American families,” cause people to question the federal government’s ability to defend its national security interests and “harm our global leadership position,” Yellen warned.[7] In addition, the U.S. dollar's status as the world's reserve currency would be called into question if the U.S. government defaulted on its debt. Investors are expected to look for alternative safe-haven assets, which could result in a significant decrease in the value of the dollar compared to other major currencies. The potential consequences of this are far-reaching, affecting not only global trade but also the stability of the international financial system and the prices of imported products for American buyers.[8]
During the Obama administration, discussions surrounding the government's spending budget and debt ceiling were often gridlocked, setting a precedent for highly divisive political conflicts.[5] During 2011, the House Republicans struggled for several months to reduce the deficit while trading it for an increase in the debt ceiling, resulting in the country's credit rating being affected for the first time.[5] The talks were concluded two days prior to the announcement by the Treasury that the funds of the United States would have been depleted.[5] The United States Government Accountability Office reported that the postponement of voting to increase the debt ceiling had an impact on the stock market and resulted in increased borrowing rates for the U.S. As a consequence, the country incurred an extra expense of $1.3 billion in 2011.[5]
The way to reach a default is evident.[9] If America fails to raise its debt limit, which is currently set at $31.4 trillion, by approximately June 1st, it will be unable to fulfill its various obligations, including paying military personnel, sending pension cheques, and making bond interest payments.[9] In the past, the nation has encountered comparable time constraints, causing onlookers to presume that it will, as before, augment its debt ceiling at the eleventh hour.[9] However, its politicians are currently more divided than they were during previous confrontations.[9] To maintain his narrow and contentious majority, Republican House of Representatives speaker Kevin McCarthy is advocating for significant reductions in spending.[9] If Joe Biden is perceived to have surrendered to Republican demands, he might risk losing the backing of progressive Democrats.[9]
In conclusion, the US government must raise or suspend the debt limit by early June to prevent a potential economic crisis. Failure to do so could cause severe hardship to American families, harm the country's global leadership position, and negatively impact the global economy.[10] The clock is ticking, and political leaders must come to an agreement to prevent a default on the government's debt.
0. “Yellen Says It's Now ‘Highly Likely' US Out of Cash Early June” Bloomberg, 22 May. 2023, https://www.bloomberg.com/news/articles/2023-05-22/yellen-says-it-s-now-highly-likely-us-out-of-cash-early-june
1. “Janet Yellen reaffirms June 1 as hard deadline to raise the debt ceiling” CNN, 21 May. 2023, https://www.cnn.com/2023/05/21/business/yellen-debt-ceiling-deadline/index.html
2. “Yellen warns Congress again that default could be just days away, but others forecast a little more time” CNN, 22 May. 2023, https://www.cnn.com/2023/05/22/politics/debt-ceiling-default-yellen-june-1/index.html
3. “What happens to the global economy if the US defaults on its debt?” Vox.com, 19 May. 2023, https://www.vox.com/politics/2023/5/19/23727337/debt-ceiling-limit-default-crisis-global-economy-yellen
4. “A default on the U.S. debt would be far worse than a government shutdown. Here's how • Missouri Independent” Missouri Independent, 19 May. 2023, https://missouriindependent.com/2023/05/19/a-default-on-the-u-s-debt-would-be-far-worse-than-a-government-shutdown-heres-how/
5. “What Happens If a Debt Ceiling Agreement Isn't Reached” TIME, 14 May. 2023, https://time.com/6279707/debt-ceiling-agreement/
6. “In new letter, Janet Yellen warns Speaker McCarthy US will breach debt limit June 1” Fox Business, 22 May. 2023, https://www.foxbusiness.com/economy/new-letter-janet-yellen-warns-speaker-mccarthy-us-breach-debt-limit-june-1
7. “Yellen Doubles Down On June 1 Deadline To Avert Default—As Debt Ceiling Talks Drag On” Forbes, 22 May. 2023, https://www.forbes.com/sites/brianbushard/2023/05/22/yellen-doubles-down-on-june-1-deadline-to-avert-default-as-debt-ceiling-talks-drag-on/
8. “3 Ways To Profit From A Government Debt Default” Barchart, 19 May. 2023, https://www.barchart.com/story/news/17045317/3-ways-to-profit-from-a-government-debt-default
9. “What happens if America defaults on its debt?” The Economist, 22 May. 2023, https://www.economist.com/finance-and-economics/2023/05/22/what-happens-if-america-defaults-on-its-debt
10. “What Is the Debt Ceiling and Will the U.S. Default? Everything to Know” PEOPLE, 22 May. 2023, https://people.com/politics/debt-ceiling-negotiations-possible-economic-default-what-to-know/
