Treasury Secretary Janet Yellen tells Congress that US failure to fulfill its debt obligations will trigger “irreparable harm” to the nation’s economic system, as Republicans demand spending cuts.
(AFP)
The US Treasury has begun taking measures to forestall a default on authorities debt, as Congress heads in direction of a high-stakes conflict between Democrats and Republicans over elevating the borrowing restrict.
Such “extraordinary measures” will help cut back the quantity of excellent debt topic to the restrict, at the moment set at $31.4 trillion, however the Treasury on Thursday warned that the instruments would solely assist for a restricted time, probably not longer than six months.
“I respectfully urge Congress to act promptly to protect the full faith and credit of the United States,” mentioned Treasury Secretary Janet Yellen in a letter to Congressional management on Thursday.
She added that there’s “considerable uncertainty” on how lengthy the measures can final earlier than risking default.
“Failure to meet the government’s obligations would cause irreparable harm to the US economy, the livelihoods of all Americans and global financial stability,” Yellen warned final week.
A default would hurt US credibility, and JP Morgan Chase Chief Executive Jamie Dimon additionally cautioned Thursday that “we should never question the creditworthiness of the United States government.”
“That is sacrosanct. It should never happen,” he mentioned in an interview with CNBC.
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‘Rancorous politics’
The world’s greatest economic system might face extreme disruption with Republicans threatening to refuse the standard annual rubber stamping of an increase within the authorized borrowing restrict and this might push the United States into default.
Republicans argue that radical cuts to authorities spending are wanted to cut back borrowing, which Congress has typically agreed to extend annually – elevating the so-called debt ceiling.
“Unchecked spending will have dire consequences,” mentioned Republican House Ways and Means Committee Chairman Jason Smith in a press release.
For now, the Treasury Department mentioned it will flip to sources from two funds for retirees because it begins its “extraordinary measures.”
It is not going to totally make investments a portion of the Civil Service Retirement and Disability Fund (CSRDF), with a “debt issuance suspension period” to final till early June.
Treasury may also halt further investments of quantities credited to the CSRDF and Postal Service Retiree Health Benefits Fund, Yellen mentioned in saying the most recent actions.
As the debt ceiling is reached, Treasury will begin to attract down its money balances and switch to accounting methods and instruments to permit the federal government to proceed its features, mentioned Mickey Levy of Berenberg Capital Markets.
But he believes the chance of a authorities default on its debt is near zero.
“I think ultimately… there will be an agreement to raise the debt ceiling but between now and then, there’s going to be a lot of debate and rancorous politics,” Levy mentioned.
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Source: AFP
