By: AFP, AP and La Hora newsroom
The United States could run short of funds by June 5, at the risk of not being able to meet its accounting and financial commitments, however, following an agreement between President Joe Biden and Republican Kevin McCarthy, the Speaker of the House. Happened. Representatives of the United States of America.
Amid disagreements between the White House and Republicans in Congress, the two managed to agree on increasing the country’s debt-issuing capacity, but what happens if no consensus is reached?
“D” day would be when the Treasury Department would start running short of money. It could be as early as June 5, according to Treasury Secretary Janet Yellen, who updated the date this Friday, which was previously set as June 1.
,Based on the latest data available, we now estimate that the Treasury will have insufficient resources to meet the government’s obligations if Congress does not raise or suspend the debt ceiling on June 5.“, the Treasury Secretary wrote in a letter to Kevin McCarthy, the Republican leader of the House of Representatives.
Calculating the exact date of a potential default is difficult, if not impossible.
The federal government reached its debt limit of $31.4 trillion in mid-January. To meet its obligations, the Treasury adopted a series of accounting measures.
When these measures and liquidity are exhausted in a hypothetical case, only money income can be counted as finance expenditure.
The next loan interest payment will be on June 15. If the Treasury failed to comply, the world’s largest economy would have been headed for default.
In the first two weeks of June, $302 billion should be earned, but only $199 billion will enter the public coffers, according to data from the bipartisan Policy Center think tank.
This difference will be 103 billion dollars.
Should all pensions be paid and not health expenses? Keep money for loan, but will not pay salary? Or pay part of it to match money income?
,Difficult decisions will have to be taken if the loan limit is not increasedYellen emphasized in recent weeks.
According to Gregory Dako, chief economist at EY Parthenon, in an interview with AFP, there were two possibilities if that moment came: “prioritize some payments” or “reduce all spending by 30%” to match the collection. For.
Social expenditure can be affected by default
In the year 2022, spending for Social Security, which includes pensions, and the Department of Health, through the Medicaid and Medicare programs, would be about $2.8 trillion out of a total budget of $6.27 trillion. These expenses represent 45% of the total budget of the federal government.
According to The Washington Post, in the event of a lack of funds due to the impossibility of issuing a loan, accounting skills such as delaying certain payments can be used. However, this would be a temporary solution.
If political disagreements persisted, the government would prioritize the payment of the public debt to avoid payment defaults. Treasury Secretary Janet Yellen has stressed that without the ability to issue more debt, the money will not be enough to cover all spending.
the retired, the sick and the poor; the weakest
The results could be significant for the most vulnerable Americans, such as the retired, the sick and the poor. There could be delays in pensions and lack of care capacity in health centres.
Solution: Sell the property
Another possibility would have been that the Department of Social Security and Health sold the assets in the financial markets.
However, they are required by law to invest only in yield-generating government assets, primarily limiting their options to Treasury bonds. In the event of a US default, these bonds could drop in value.
Thus the health and pension agencies would lose these funding options. Social Security has approximately $2.8 trillion in assets and is the largest holder of the Treasury in the world. The Department of Health has about $430 billion. These figures represent several months or years of financing, depending on the current prices of the bonds.
One of the most important pieces behind the agreement between Biden and McCarthy lies in a two-year budget agreement that would freeze spending for 2024 and impose limits for 2025 in exchange for raising the debt ceiling for two years, the destabilizing issue of Will push politics beyond. next presidential election.
Data included in this note,
America’s roadmap to avoid default -AFP-
Social spending, first victim of US default – AFP
Yellen: There is no good choice on the debt issue -AP-