The use by the President of the United States of a constitutional amendment to avoid default due to reaching the national debt limit could lead to a full-blown constitutional crisis in America. This was stated in an interview with ABC News by US Treasury Secretary Janet Yellen.
“We should not be in a situation where we have to consider whether the president can decide the issue of debt. It will be a constitutional crisis,” the minister said.
The official added that the US government’s priority should be to convince Congress to “do its job and raise the debt ceiling.”
“Otherwise, there will simply be no good options for the development of the event,” Yellen emphasized.
She also said that the US Treasury’s ability to avoid default through the use of “extraordinary” measures is gradually exhausted. “We have been using emergency measures for several months now, but this cannot continue for a long time,” said the head of the US Department of the Treasury.
According to her, the department remains uncertain about the forecasts of a possible default.
“We predict that we will run out of money in early June. There is a chance that this will happen on June 1st. Of course, there is significant uncertainty,” Yellen said.
Janet Yellen sent a letter to Congress on May 2, warning lawmakers that the United States government could run out of emergency tools by June 1 due to reaching the national debt limit. Congress, the treasury secretary added at the time, must raise or suspend the national debt limit or the US government will be unable to fulfill its obligations.
“Because federal revenue and spending are inherently volatile, the actual date that the Treasury will run out of emergency measures may be weeks later,” the letter said.
At the same time, if Congress delays the decision to increase the national debt limit, then business and consumer confidence will suffer, the rate of quick loans will increase and the American credit rating will seriously deteriorate.
The limit or ceiling of the national debt is the maximum amount of money that the United States can borrow from investors who buy bonds. When the limit is reached, the Federal Treasury will no longer be able to issue securities, and will only be able to pay bills at the expense of taxes.
On May 7, Bloomberg reported that a group of 43 Republican senators refused to agree on an increase in the national debt ceiling. According to members of the US Senate, the Biden administration should make significant cuts in government spending and carry out budget reforms.
“Our economy is in free fall due to unsustainable fiscal policy,” the Senate Minority letter said.
On May 9, Biden and the leadership of the Congress intend to negotiate with representatives of the Republican Party about some budget restrictions. The Democratic Party is convinced that tying spending cuts to an increase in the debt limit is tantamount to “hostage taking.”
On May 6, The Economist magazine reported that due to the record amount of public debt, the US may face either a default or a sharp reduction in government spending. Both options pose a great threat to the global economy. At the same time, Washington is in no hurry to correct the critical situation. Getting closer to the “X date”. What threatens the US with a default on the public debt Exceeding the limit of the US public debt can lead to a default on it, follows from the analysis of the budget… 04 May 12:59
“A default will undermine confidence in the world’s most important financial system, and severe fiscal cuts will trigger a deep recession. However, the debt ceiling is a purely political creation that makes no economic sense. Wherein
there is no political solution to the current problem in the States, as officials in their discussions reach a dead end, ”the article says.
If the politicians agree and raise the debt ceiling, the outcome of the situation will still be bad – this will not be the first increase in the limit, and the financial stability of the United States will still be shaken.
It is becoming increasingly difficult for Democrats to develop a sustainable plan for fiscal policy. At the same time, changes in economic policy are likely to occur in the event of a severe crisis, the material says. However, it would then have to accept “draconian spending cuts that would trigger a severe recession.”
Why could the US default?
The US government debt exceeded the legal ceiling of $31.4 trillion on January 19, 2023. In this regard, the Ministry of Finance began to take “anti-default” measures. At the same time, in the coming decade, the government may spend $10.5 trillion to pay interest on the public debt.
“Looking forward, this means net interest spending will exceed all defense spending,” the Congressional Budget Office said.
Government debt – the debt of the US federal government to its creditors; By borrowing money, the American government covers the budget deficit and pays for current expenses. For example, these funds pay for the needs of the health care system or the US Armed Forces.
The increase in the US national debt is due to the non-stop growth of the budget deficit. Due to increased spending on the fight against COVID-19, including on the payment of benefits, the national debt limit was reached a couple of years earlier than the Biden administration expected.
A default in the US can occur only in one case – just if the Congress forbids the authorities to raise the ceiling of the national debt. States regularly find themselves “on the verge of default,” but so far, lawmakers have simply increased the limit.