US Treasury Secretary Janet Yellen on Friday in a letter to Congress raised the red flag on an imminent debt crisis.
Given the sharp differences between the ruling Democrats and the opposition Republicans, who enjoy a majority in the House of Representatives, not handling the issue on time might result in the United States defaulting on its debt commitment, which has never happened in the past.
Republicans have so far insisted on not raising the debt limit which currently is USD 31.381 trillion as approved by Congress last month. This debt limit is the total amount of money that the US government is authorised to borrow to meet its existing legal obligations, and is scheduled to reach its statutory limit on January 19.
In her letter to the Congressional leadership, Yellen asserted that it is “critical that Congress act in a timely manner to increase or suspend the debt limit”.
Failure to meet the government’s obligations would cause irreparable harm to the US economy, the livelihoods of all Americans, and global financial stability, she warned.
A day earlier, House Speaker Kevin McCarthy indicated that he is willing to work with the government on this issue.
“We don't want to put any fiscal problems through our economy, and we won't. But fiscal problems would be continuing to do business as usual. I remembered when Trump was President and Nancy Pelosi was Speaker that became a debt ceiling agreement, and it was a cap agreement for two years, to cap the spending and make those decisions,” McCarthy told reporters at a news conference.
“This is something that people have utilised. But I ask all of you and all Americans if you have a child and you give them a credit card and they spend the limit, so you increase the limit again and again and again, when does it end? We've got to change the way we are spending money wastefully in this country, and we're going to make sure that happens,” he said.
McCarthy has indicated his conditions for raising the debt ceiling. “To get a debt ceiling, they also got a cap on spending for the next two years. Spending is out of control here. There's been no oversight, and we cannot continue around the same process,” he said.
“I had a very good conversation with the President when he called me, and I told him I'd like to sit down with them early and work through these challenges,” McCarthy said.
Yellen in her letter said that once the limit is reached, the Treasury will need to start taking certain extraordinary measures to prevent the United States from defaulting on its obligations.
The two extraordinary measures Treasury anticipates implementing this month are (1) redeeming existing, and suspending new, investments of the Civil Service Retirement and Disability Fund (CSRDF) and the Postal Service Retiree Health Benefits Fund (Postal Fund), and (2) suspending reinvestment of the Government Securities Investment Fund (G Fund) of the Federal Employees Retirement System Thrift Savings Plan.
Congress has expressly provided Treasury with the authority to take these actions, and prior Treasury Secretaries have used these measures, which will reduce the amount of outstanding debt subject to the limit and temporarily provide additional capacity for the Treasury to continue financing the operations of the federal government. After the debt limit impasse has ended, the CSRDF, Postal Fund, and G Fund will be made whole, she said.
(This story is published as part of the auto-generated syndicate wire feed. No editing has been done in the headline or the body by ABP Live.)