Following the expiration of the two-year suspension of the debt ceiling, the Treasury Department began carrying out on Monday extraordinary emergency steps to conserve cash in order to avoid busting the federal borrowing limit, CNBC reported.
Economists say these measures will permit the Treasury to pay off the government’s bills without floating new debt for only about two to three months or the United States will risk defaulting on its obligations unless Congress either raises or suspends the borrowing limit.
Experts warn that if the federal government does default, which has never happened, there would be disastrous effects on the economy, including a sharp increase in interest rates.
Harvard University economics professor Karen Dynan told CNBC that "the government needs to have funds, for example, to pay interest on its debt, and if it were to stop paying interest that could be extremely unsettling for financial markets," adding that this money is needed to, for example, give government workers their salaries and send out Social Security checks.
However, Lindsey Piegza, chief economist for Stifel, noted to CNBC that "We’ve implemented extraordinary measures before, so from a procedural standpoint this isn’t much of a concern."
But she stressed that "the implication is a further showdown in Washington eroding the average American’s confidence in a cohesive, functioning government."
A similar situation has caused numerous standoffs between Republicans and Democrats over the past decade, most recently in 2019, The Hill reported.
However, each time, Congress has raised or suspended the debt limit, although the crisis itself led to uncertainty in financial markets before they were resolved.
Treasury Secretary Janet Yellen recently warned members of Congress in a letter that if the debt ceiling is not raised, it will risk "irreparable harm to the U.S. economy and the livelihoods of all Americans," the Daily Caller reported.
Yellen told the legislators that she did not know how long exactly the Treasury Department could keep the U.S. from defaulting on its obligations in such a situation.
An aide to House Democratic leadership told CNBC that discussions about the ceiling are ongoing, and that the party’s top lawmakers will not risk the full faith and credit of the United States. However, the aide did not specify how a solution would be found before the situation spins out of control.
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