Why is this a worrying possibility?

US Treasury Secretary Janet Yellen recently announced that “exceptional action” must be taken this week to prevent the United States from defaulting on its debt. Why is this so important and should the debt ceiling be raised again?


The United States is at risk of defaulting on its debt

It would be the impossibility of fulfilling the obligations of the state Irreparable damage to the US economy.The Secretary of the Treasury described the situation in these words in an open letter sent to the new Speaker of the House of Representatives, Kevin McCarthy. Time is running out for Janet Yellen and the US Treasury, who must act this week to prevent a US debt default in the coming months.

The proposed solution is to raise the national debt ceiling again. That’s enough A whopping 121% of GDP, and is now close to the ceiling set at $31.4 trillion. Raising it would avoid default. According to Janet Yellen, the measure “means giving the government funding authority, not authorizing new spending [ses] legal obligations.»

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What are default risks?

The Biden administration is caught between a rock and a hard place. On the one hand, the new Republican speaker of the House has made it an issue in his campaign. and called the situation irresponsible :

“Costs are out of control, no control. […] We need to change the way we spend recklessly in this country. »

But on the other hand, default risks overshadow the political issue. There will be no Treasury in default There is no longer any possibility of borrowing in the financial markets to pay public debts. And in that case, the entire American economy would be at risk. A point emphasized by Janet Yellen explained that the situation is threatening “livelihoods of all Americans as well as global finance“.

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Non-uniform ceiling

Recall that this famous ceiling has a ceiling in name only: It has been raised 79 times since 1960, to pay off the mounting debt of the world’s largest economy. But this time, the tension between the Republicans, who have made it the main issue, and the Democrats, who are tied hands and feet, should be sharp.

Republicans are likely to play on that tension and wait until the last minute before finally reaching a deal — which happened the last time it was raised in 2021. Anyway, all this shows an explosive mix of these political and economic issuesthe consequences of which can reach far beyond the United States House of Representatives.

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Source: US Treasury Department, press release

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