Treasury Secretary warned U.S. would run out of funds on October 18 if debt ceiling was not raised

United States Treasury Secretary Janet Yellen on Tuesday warned that it is likely that the administering agency will exhaust measures on October 18 to continue funding the government and run out of cash, unless Congress does increases the federal debt ceiling. .

After that day, “the Treasury would find itself with very limited resources which would quickly run out. It is not certain that we can continue to fulfill all of the nation’s commitments after this date “, noted.

His warning comes a few hours later Republicans in Senate vote against and block bill which proposed raising the debt ceiling and which had already been approved by Democrats in the House of Representatives to suspend the ceiling until December of next year.

Faced with this scenario, Joe Biden’s administration faces two time trials. The first expires at midnight from Thursday to Friday, when the government will be forced into a partial administrative closure for lack of funds.

The second in mid-October, which now has a date, estimated by Yellen, when the United States could enter into suspension of payment on its national debt, which would have serious consequences: interest rates on US debt would skyrocket, the stock market would fall, and tens of millions of soldiers and retirees would have no income. Besides, another recession could strike with millions of jobs lost.

This Tuesday, Yellen also reiterated that a default caused by Congress’ inability to lift the federal debt ceiling would affect America’s full confidence and credit “and our country would likely face a financial crisis and economic recession.” But he added that he still hoped the debt ceiling could be raised in a bipartisan fashion.

In his statement prepared for a Senate Banking Committee hearing, Yellen also commented that the recovery from a recession induced by the COVID-19 pandemic remains “fragile but rapid.”

“As our economy continues to grow and recover a substantial portion of the jobs lost in 2020, the significant challenges of the Delta variant continue to dampen the speed of recovery and present substantial obstacles to a vibrant economy,” he said. he noted. “Still, I remain optimistic about the medium-term trajectory of our economy and I hope we return to full employment next year.”

Debt limit

This debt ceiling situation, which drags the United States into the abyss every few years, occurs because the government spends far more money than it receives through federal taxes. In 2021 alone, it is estimated that the government will spend $ 5.8 trillion and have $ 3.5 trillion in revenue, leaving a deficit of $ 2.3 trillion, according to the Congressional Budget Office.

The government can only issue debt up to the limit set by Congress, which has the power to raise this ceiling as it sees fit.

In Tuesday’s vote, Republicans argued that they disagreed with approving government funding and borrowing under the same umbrella.

Lawmakers negotiated an increase in the debt limit for decades. But the drive to push the world’s largest economy to the brink dates back to 2011, when Republicans decided to cut Democratic spending and used the cap to do so.

“Most (Republican) leaders consider the 2011 Debt Ceiling Showdown to be ultimately a success, as they were able to force (then-President Barack Obama) to sign what was the biggest bill to cut spending. decades without failing, ”said Brian Riedl, then chief economist to Republican Senator Rob Portman.

The deal they struck was to cut government spending over the years.

But it was not fulfilled: the national debt and the budget deficit of the United States exploded in the following years due to the spending of the Republican and Democratic presidents.

(With information from AFP, Reuters)

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