Amid tensions between Republicans and Democrats increase in credit limit of the country, a recent analysis of United States Congressional Budget Office (CBO) warned that the lack of agreement on the issue could lead to a catastrophic situation earlier than expected.
According to estimates from the politically independent service CBO, responsible for providing the legislature with financial and economic analysis, the country could be on the brink of default as early as June, rather than July and September as initially reported. .
“If the credit limit remains unchanged, There is a significant risk that at some point in the first two weeks of June the government will not be able to pay all its obligations”, indicated the entity.
“The Treasury Department’s ability to fund ongoing government operations will remain uncertain through May, even if it finally runs out of money in early June,” he added.
This vision was supported by the Treasury itself, which set the first of next month as the date of a possible default by the world’s largest economy. An unprecedented situation and whose impact on global markets could be devastating,
However, the CBO acknowledged that “additional extraordinary measures” adopted by the Biden administration, as well as end-quarter tax receipts, could allow the government to “fund its operations through at least the end of July.”
For months, the two political sides have been in talks in which they are trying to reach an agreement on how to deal with pending payments once the country reaches par. 31 trillion dollars a figure from which it can no longer issue new loans to finance itself.
The CBO explained, “If the borrowing limit is not extended or suspended, the Treasury will not be authorized to issue additional debt.”
Faced with this scenario, the Republican wing refused to support a new cap without concessions, something that would lead to “late payments for certain government activities, default on government debt obligations, or both”. .
These actions could lead to a crisis in credit markets, disruption of economic activity and sharp interest rate hikes for Treasuries.
next week with a view to reaching an agreement in the near future President Biden and Republican leaders in Congress will meet,
However, the President still has an ace up his sleeve, it is about amendment 14 of the national constitution which states that “the validity of the public debt of the United States authorized by law (…) shall not be questioned.”
This section, which ultimately sets out Must be able to pay the expenses already voted on, This could be Biden’s way out of this problem, though not without litigation and political repercussions.
Isaac Boltansky of financial services firm BTIG pointed out in this regard that “there is good reason to believe that the use of the amendment will be taken to court and there will be a period of apparent uncertainty for the global economy.”