What you should know about the debt ceiling news as a potential default looms

What you should know about the debt ceiling news as a potential default looms

The Treasury Department began attempting to avert a default after the US reached its debt ceiling on Thursday. However, Treasury Secretary Janet Yellen does not anticipate a US debt default before early June. Congress must begin discussing a resolution that is not expected to be simple.

What exactly is the debt ceiling?

Given that the government has a budget deficit and insufficient tax revenues. Congress established the debt ceiling as the maximum amount the federal government can borrow to finance obligations lawmakers and presidents have previously approved. No additional spending commitments are authorized by raising the cap.

The debt ceiling was established over a century ago and has been altered over 100 times since World War II. It is currently $31.4 trillion. However, the borrowing cap was initially intended to facilitate federal borrowing. In recent years, Congress has used it to control borrowing growth, turning it into a political football.

But every time, most recently in December 2021. Politicians have passed legislation to increase or suspend the ceiling out of fear of default.

What occurs if the US makes a debt default?

While “considerable uncertainty” surrounds that forecast, the government is unlikely to use up its cash and extraordinary measures before early June. According to Yellen in a letter to House Speaker Kevin McCarthy last week. It depends on how much money the government brings in from taxes for 2022 this spring. Read More…

Suppose the government cannot borrow money. It will need more cash to meet all its obligations, including the interest on the national debt, on time and in full. Therefore, it may have to temporarily postpone payments or let some of its obligations lapse, which might impact things like Social Security benefits, veterans’ help, and salaries for federal employees, among other things.

However, because it has never occurred, no one knows how Treasury would handle the circumstance.

A default would also increase borrowing costs and disastrously affect the US economy and international financial markets. The sole credit rating drop in the country’s history was brought on even by the prospect of one in 2011.

What exactly are exceptional measures?

These actions primarily consist of accounting tricks used in the background. Congress has granted the Treasury secretary the authority to adopt various extraordinary steps to avert default, allowing legislators additional time to raise or suspend the ceiling. Secretaries have taken such actions in both Democratic and Republican administrations.

This time, Yellen plans to liquidate current holdings and stop reinvesting in the Postal Service Retiree Health Benefits Fund and the Civil Service Retirement and Disability Fund. Additionally, she controls the Federal Employees Retirement System Thrift Savings Plan’s reinvestment in a fund of government securities.

These funds’ investments in special-issue Treasury securities count against the debt ceiling news. By taking these steps, Yellen would reduce the amount of outstanding debt included in the cap while temporarily increasing the agency’s ability to continue supporting the federal government’s operations.

Who would impact no retirees, and would the money be fully refunded if Who broke the impasse?

The debt ceiling will Congress raise?

Concerns over McCarthy’s ability to control Republican hardliners, who see a possible default as a vehicle to compel the government to slash expenditure and negotiate a deal with Democrats. Those who reject any reductions have recently arisen in the House speaker contest.

We should “look at the places where we can change our behavior,” McCarthy said on Fox on Sunday, adding that else “we’re going to bankrupt this country.” However, the White House stated last week that it would not enter negotiations or make any compromises about lifting the debt ceiling news.

In the meantime, House Republicans are putting together backup plans that would instruct the Treasury Department which payments to prioritize if lawmakers cannot agree on the debt ceiling.

How is the federal government shutdown different from the debt ceiling crisis?

Although the two are sometimes confused. Still, a debt ceiling crisis arises if politicians fail to pass legislation to raise the debt ceiling news.

Last month, Congress enacted a $1.7 trillion federal budget plan to avoid a government shutdown that may have stopped non-essential operations. This resulted in many federal workers losing their pay. The legislation will support government activities through September 30, the fiscal year ends.

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