US debt dispute: Treasury Secretary Yellen warns

US debt dispute: Treasury Secretary Yellen warns

US Secretary of the Treasury Janet Yellen has increased its pressure in the debt dispute and updated its forecast on the impending default. Based on the latest available data, she now estimates her department would run out of funds if Congress doesn’t raise or suspend the debt ceiling by June 5, Yellen wrote Friday to the Republican speaker of the US House of Representatives. Yellen had previously warned of a possible government default in early June – possibly as early as June 1st. She now calls the new date with greater certainty. President Joe Biden said on Friday evening (local time) that an agreement was within reach.

For weeks, Biden’s Democrats and Republicans have been arguing in tough rounds of negotiations about raising the debt limit. The new date gives the two negotiating parties a short breathing space. It could also just prolong the argument. Yellen made it clear that the situation was serious and that the treasury was almost empty. The debt ceiling is currently $31.4 trillion. This cap has already been reached for months USA can only stay afloat with financial policy tricks – known in technical jargon as “extraordinary measures”. Yellen said that if the US waited until the last minute to raise the cap, the consequences could already be serious.

As early as 2011, a Republican majority in the US Parliament had delayed raising the debt ceiling for so long that the US credit rating was downgraded for the only time in history. The rating agency Standard & Poor’s dropped the top rating “AAA” at the time and has since rated the USA only “AA+” – one rating lower. The rating agency Fitch also threatened this week with a possible downgrading of the top credit rating. It is believed that the risk has increased that the debt ceiling will not be raised in time and that the US government will no longer meet its payment obligations, it said.

In the United States, Parliament decides the maximum amount of money the state can borrow. In the USA, this repeatedly leads to arguments about raising the upper limit if the governing party does not have a majority in both chambers of Congress. An unprecedented US government default could result in a global financial and economic crisis. In the United States, economists and labor market experts fear, millions of people could lose their jobs as a result.

Head of the International Monetary Fund criticizes the USA

The Republicans emphasized again on Friday that there was progress in the talks with the Democrats. But they also made it clear that there were always new points of contention that delayed an agreement. Biden, on the other hand, was optimistic and said he hoped to know in a few hours if there was an agreement. The Republicans, with their majority in the US House of Representatives, want to use the negotiations to cut spending on certain social programs. They are also calling for recipients of certain benefits to be required to work. The Democrats are opposed to this, arguing that this would hit the weakest in society even harder.

The head of the International Monetary Fund, Kristalina Georgieva, criticized the USA. The stability of the global financial system is at stake, she warned. It is “frustrating” that an agreement on raising the debt ceiling is being waited until the last minute. It was just before twelve, she said.

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