In the dispute over the debt ceiling in the USA, Treasury Secretary Janet Yellen is increasing the pressure and is already warning of a possible default by the government on June 1st. However, the reserves could also not be used up until a few weeks later, and the exact date is impossible to predict, Yellen wrote in a letter to Republican Speaker of the US House of Representatives Kevin McCarthy on Monday. The estimate is based on currently available data.
If the debt ceiling is not raised soon, there could be an unprecedented US government default – which could plunge the global economy into a crisis.
In the United States, Congress sets a debt ceiling at irregular intervals and determines how much money the state can borrow. The debt limit is currently around 31.4 trillion US dollars (equivalent to around 28.6 trillion euros). In the meantime, this debt ceiling has been reached and the US Treasury must tap into the capital reserves – because the US is now no longer allowed to take on any new debt to pay its bills.
However, US President Joe Biden and his Democrats need the Republicans to raise the debt ceiling – and they are opposed to an increase without significant savings in certain government spending.
A default by the world’s largest economy could trigger a global financial crisis and a severe economic downturn. The United States would then no longer be able to pay most of its bills – millions of people could lose their jobs as a result. A default would also damage confidence in the creditworthiness of the USA, which could trigger economic turmoil. Finance Minister Yellen has repeatedly made it clear that this would be tantamount to a catastrophe.
As early as January, she had warned of a default in early June. The estimate of the independent Budget Office of the US Congress (CBO) most recently forecast a default between July and September without raising the debt ceiling. The Treasury Secretary warned that it would damage confidence in the US economy to wait until the last moment to suspend or raise the debt ceiling.
In the past, Democrats and Republicans have often come close to reaching agreement on this issue. In 2011, for example, a newly elected Republican majority in Congress delayed raising the debt ceiling. As a result, the US credit rating was downgraded for the only time in history.
Biden made it clear that he did not want to be blackmailed
Republicans want to get President Biden to approve cuts in climate protection investments and other government spending. In return, the US debt limit is to be raised by $1.5 trillion. Kevin McCarthy himself is under considerable pressure from some arch-conservative Republicans, on whom he is dependent given the thin majority in the House of Representatives. The Republican proposal passed there now goes to the Democrat-led Senate, where it is given no chance of success.
Joe Biden made it clear again on Monday that he did not want to be blackmailed. He invited McCarthy and other leaders of both parties in Congress to the White House on May 9th. Senate Majority Leader Chuck Schumer said, “We don’t have the luxury of waiting until June 1 to get together to pass proper legislation to avoid a default and catastrophic consequences for our economy and millions to prevent American families.”
The debt ceiling has been increased dozens of times since it was introduced in 1917, otherwise the money would have run out. The new debt will not fund any additional spending – it will be used to meet commitments already made. The debt ceiling is not to be confused with the budget. Here, too, there are regular arguments in Congress because the Democrats and Republicans cannot agree on a new budget law, which can result in government business being suspended, a shutdown.