Saturday, February 4, 2023

US: Treasury intervenes with measures and protects against default

WASHINGTON ( Associated Press) – The US government slammed into its debt limit on Thursday, prompting the Treasury Department to take “extraordinary” accounting steps to avoid default, but friction between President Joe Biden and House Republicans over the issue worries. Shows whether the United States can survive this. Economic Crisis.

The Treasury Department said in a letter to congressional leaders that it had begun taking “extraordinary measures” as the government reached the limit of its legal borrowing capacity of $31.38 trillion. The artificially imposed debt ceiling has been increased almost 80 times since the 1960s.

Treasury Secretary Janet Yellen wrote in the letter, “I respectfully ask Congress to act swiftly to protect the full faith and credit of the United States of America.”

So far markets have remained calm as the government can now rely on the accounting maneuver to keep operating, and any threat to the economy will be many months away. Many analysts, despite their fears, assume that the deal will happen.

But this particular moment seems more tense than other similar occasions because of differences between Biden and the new Speaker of the House of Representatives, Kevin McCarthy, who heads a strong Republican caucus.

These differences raise the risk that governments will default on their fiscal obligations for political reasons, a problem that will roil financial markets and, if left unchecked, could push the world’s largest economy into a recession that could Totally avoidable so far.

Biden and McCarthy have several months to reach an agreement while the Treasury Department implements measures to keep the government running until at least June. But partisan animosity that has been building for years has led to conflicting demands that threaten lawmakers’ ability to cooperate and fulfill a fundamental duty.

Biden insists on a “clean” debt ceiling increase to meet current fiscal obligations, refusing to even talk to Republicans. McCarthy called for talks that he believed would cut spending. It is unclear how much he wants to cut and whether his fellow Republicans will accept any deal after a contentious start to the session that required 15 rounds of voting to elect McCarthy as speaker.

The debt ceiling was a solution originally adopted during World War I that allowed the issuance of bonds without the need for repeated approval by Congress. But in an era of polarization and mounting debt, the cap has become a political tool. It does not reflect the actual borrowing capacity of the federal government, but how much it can legally borrow without congressional approval.

To keep the government running, the Treasury Department enacted a series of accounting fines that would freeze contributions to federal employees’ retirement and health funds, giving the government enough fiscal leeway to handle its day-to-day expenses until about June Will go

It is unknown what would happen if these measures lapse without agreement on the debt ceiling. The Treasury Department said a prolonged default could be devastating, as markets tumbled and panic-shortening erupted as confidence in the cornerstone of the global economy evaporated.

Bank of America analysts warned in a report last week that “a high degree of uncertainty exists regarding the pace and magnitude of damage to the US economy.”

The underlying challenge is that if the government does not have the capacity to issue debt, it must balance its finances on a daily basis. If the government cannot issue debt, it will have to cut down to the size of 5% of the total US economy.

Nation World News Desk
Nation World News Desk
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