United States: red alert on the debt ceiling

US debt red alert. The United States will reach the debt ceiling authorized by Congress on Thursday, January 19, Finance Minister Janet Yellen warned in a letter on Friday, which would force the Treasury to “take extraordinary measures” in order to avoid a default.

In her letter, addressed to the Republican Speaker of the House of Representatives, Kevin McCarthy, Janet Yellen stressed that in the absence of a new ceiling, the Treasury “is preparing to put in place this month” the first measures, which will concern several pension funds for public service employees.

Possible “irreparable damage”

The Treasury Secretary, however, warned that these measures could only be temporary and that if Congress failed to agree, the United States could find itself in a situation of default. “Failure to meet government obligations would cause irreparable damage to the American economy and the livelihoods of all Americans as well as to global finance,” Yellen insisted in her letter.

After the publication of the letter, the rates of short-term US government bonds also jumped, a sign of renewed nervousness in the market. 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).

Arm wrestling in sight in Congress?

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,” Kevin 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 happens.”

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On the Democratic side, elected Pennsylvania member Brendan Boyle, a member of the House budget committee, found Janet Yellen’s announcement “extremely worrying”, accusing the Republicans “of considering it normal to take our economy hostage to impose extremist and unpopular reforms”.

No negotiations possible for the White House

The White House on Friday called on the US Congress to raise the country’s debt ceiling, warning that it had no intention of negotiating with the Republican majority in the House of Representatives to secure a vote on the matter. ‘We won’t negotiate,’ executive spokeswoman Karine Jean-Pierre told reporters after Finance Minister Janet Yellen warned US authorized debt limit would be reached January 19. Democratic and Republican lawmakers usually cooperate on the subject, “and that’s what it takes,” she added, noting that the debt issue should not be politicized.

The current limit, of $31.381 billion, was set by Congress in December 2021, after tense discussions between Republicans and Democrats, then the majority in both houses of Congress, shortly after midnight the day the previous limit was set. had to be reached. Prior to that, lawmakers had raised or suspended the ceiling 78 times since 1960, most often without any particular difficulty.

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