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Treasury Secretary Janet Yellen has revised the estimated date which is termed as “X-Date” for a potential U.S. debt default to June 5 if Congress fails to raise the borrowing limit, pushing back the previous deadline of June 1, 2023
This negotiation
includes representatives from the Biden administration and House Republican
Speaker Kevin McCarthy with additional time to find a bipartisan solution to
lift the current spending cap, known as the debt ceiling.
However, as
lawmakers went on a holiday at weekend. Therefore, no agreement has been
materialized so far. It is intensifying the risk of the United States facing a
scenario where it cannot meet all its financial obligations.
Impending
Consequences of Reaching the Debt Ceiling:
The U.S.
federal government surpassed its borrowing limit of over $31 trillion in mid-January.
Since then, it has utilized special accounting measures to extend its spending
capabilities without raising the borrowing limit.
However, these
measures can only be sustained for a limited period, leading to a potential
clash with the debt ceiling, which is currently projected to occur on June 5.
After this
point, the government will only be able to spend the funds it generates through
taxes.
According to an
analysis by the Bipartisan Policy Center, the Treasury Department is expected
to face a funding shortfall of over $100 billion between June 1 and 15.
Treasury
Secretary Yellen recently emphasized that if the debt reached at its limits,
difficult decisions would have to be made in order to pay bills.
Both
negotiating parties have emphasized that the United States will not default on
its debts, leaving government spending as the primary area where tough choices
will need to be made.
Potential
Consequences and Mitigation Measures:
To navigate the
impending financial challenges, the Treasury Department may consider deferring
certain payments for Social Security, Medicare, and Medicaid programs,
impacting the pension and healthcare costs of millions of Americans.
Alternatively,
it could pause payments across various sectors, reducing the impact on Social
Security and healthcare recipients but affecting a broader range of government
services.
If the Treasury
Department manages to avoid defaulting on its financial obligations until June
15, it may buy some time by receiving approximately $80 billion in revenues
from income taxes.
This influx of
funds would temporarily reduce the financial strain, on the grounds that if
there are no further unexpected outflows.
However,
relying on tax revenues alone is not a sustainable long-term solution due to
the consistent imbalance between government spending and tax income.
Necessity for Political
Agreement and Potential Way Forward:
Both the White
House and lawmakers from both parties agree that default is not a viable
option. Therefore, Republicans and Democrats will eventually need to reach an
agreement to raise the debt ceiling or implement substantial spending cuts.
As the
negotiations continue, the urgency to find a resolution grows to prevent the
United States from defaulting on its debts and to ensure the continuity of
government operations.
(Courtesy: The Japan Times)
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