Imminent risk of debt default, first test for Biden against Republicans

Tick ​​tock, tick tock, goes the US debt clock. Washington may have to take “extraordinary measures” as early as next week to avoid a default by the United States, US Finance Minister Janet Yellen warned on Friday, sharply raising tension on this contentious issue between Republicans and Democrats to raise the ” debt ceiling.

In a letter addressed to the new Republican Speaker of the House of Representatives, Kevin McCarthy, the Secretary of the Treasury stressed that her department “is preparing to put in place this month” the first measures, which will concern several pension funds for employees of public services. Measures which could however only be temporary, warns the Secretary of the Treasury: in the absence of a new ceiling, the United States could find themselves in a situation of default, a first in the history of the country.

“Spending out of control”

“Failure to meet government obligations would cause irreparable damage to the American economy and to the livelihoods of all Americans as well as to global finance,” Yellen insisted in his letter. But the Republican majority in the House of Representatives could play the clock on the subject, to try to force the Democrats to reverse certain expenditures voted before its installation.

“Spending is out of control, there’s been no oversight and it can’t go on like this,” Mr. McCarthy told reporters on Thursday, “We need to change the way we recklessly spend money in this country and we’re going to make sure that’s what’s going to happen”.

The White House, for its part, called on Congress to raise the country’s debt ceiling, already warning that it had no intention of negotiating with the Republican majority to obtain a vote on the subject. If in the past lawmakers have raised or suspended the ceiling 78 times since 1960, most often without difficulty, the 79th time, in December 2021, has already caused serious tensions between the two parties.

The debt at more than 30,000 billion dollars

The Republicans, then in the minority, had judged that raising the ceiling would amount to giving a blank check to the American president, accusing him of contributing to galloping inflation. For Democrats, raising the limit was only for the purpose of repaying borrowed money, including trillions spent under President Trump.

Congress had finally agreed, at the extreme limit, at midnight the same day the previous ceiling was reached, to raise it to 31.381 billion dollars. In her letter on Friday, Janet Yellen stresses that raising or suspending the ceiling “does not mean authorizing new spending” but simply “authorizing the government to fund the legal obligations that Congress and presidents of both parties have made in the past”.

Sign of the nervousness that the idea of ​​a potential US default arouses in the markets, the rates of short-term US government bonds jumped after the publication of the letter. The yield on one-month Treasury bills rose to 4.43%, its highest level in more than 15 years (September 2007). It had already climbed a lot in recent months due to the monetary tightening of the American central bank (Fed).

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