United States: Republicans and Democrats grapple with the risk of default on the debt

Washington may have to take “extraordinary measures” as early as next week to avoid a default by the United States, US Finance Minister Janet Yellen warned on Friday, sharply raising tension on this contentious issue between Republicans and Democrats.

In a letter addressed to the new Republican Speaker of the House of Representatives, Kevin McCarthy, the Secretary of the Treasury underlines that his ministry “is preparing to put in place this month” the first measures, which will concern several pension funds for service employees public.

Measures which could however only be temporary, warns Ms. Yellen: in the absence of a new ceiling, the United States could find themselves in a situation of default, a first in the history of the country. A default means that the United States could not repay on the due date the maturities linked to its debt, whether it is a borrowed amount or the interest linked to it.

“Failure to meet government obligations would cause irreparable damage to the US economy and the livelihoods of all Americans as well as to global finance,” Yellen said in her letter.

But 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,” McCarthy told reporters on Thursday. “We need to change the way we spend money recklessly in this country and we’re going to make sure that’s what happens,” he added.

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

The White House, for its part, called on Congress to raise the country’s debt ceiling, already warning that it had no intention of negotiating with the Republican majority to obtain a vote on the subject.

– “Legal obligations of both parties” –

The spokeswoman for the executive, Karine Jean-Pierre, reminded the press that usually elected Republicans and Democrats cooperate on the subject “and that is what is needed”, adding that the question of the debt does not should not be politicized.

“Republicans in the House are literally telling the country they are ready to cause the most egregious self-inflicted meltdown in modern history if they can’t cut spending on the most popular programs. “with voters, said his deputy, Andrew Bates.

Among the expenses that the Democrats accuse the Republicans of wanting to trim are health insurance, in particular for retirees, as well as food aid for the poorest.

If in the past lawmakers have raised or suspended the ceiling 78 times since 1960, most often without difficulty, the 79th time, in December 2021, has already caused serious tensions between the two parties.

The Republicans, then in the minority, had judged that raising the ceiling would amount to giving a blank check to the American president, accusing him of contributing to galloping inflation. For Democrats, raising the limit was only for the purpose of repaying borrowed money, including trillions spent under the Trump presidency.

Congress had finally agreed, at the extreme limit, at midnight the same day the previous ceiling was reached, to raise it to 31.381 billion dollars.

In her letter on Friday, Janet Yellen stresses that raising or suspending the ceiling “does not mean authorizing new spending” but simply “authorizing the government to fund the legal obligations that Congress and presidents of both parties have made in the past”.

Sign of the nervousness that the idea of ​​a potential US default arouses in the markets, the rates of short-term US government bonds jumped after the publication of the letter.

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).

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