{"id":575999,"date":"2023-05-25T17:53:58","date_gmt":"2023-05-25T14:53:58","guid":{"rendered":"https:\/\/en.buradabiliyorum.com\/what-will-happen-if-the-u-s-hits-the-debt-ceiling\/"},"modified":"2023-05-25T17:53:58","modified_gmt":"2023-05-25T14:53:58","slug":"what-will-happen-if-the-u-s-hits-the-debt-ceiling","status":"publish","type":"post","link":"https:\/\/buradabiliyorum.com\/en\/what-will-happen-if-the-u-s-hits-the-debt-ceiling\/","title":{"rendered":"#What will happen if the U.S. hits the debt ceiling?"},"content":{"rendered":"
\n

WASHINGTON \u2014 With congressional leaders seemingly at a stalemate over a deal to raise the nation\u2019s debt ceiling, the risks are growing that the U.S. could run out of money to pay all its bills by as early as next week \u2014 putting the country in uncharted waters as to what happ<\/a>ens next.<\/p>\n

The debt ceiling<\/a> refers to a law <\/a>that caps the total amount of federal debt allowed to be outstanding. The U.S. hit that limit in January, but the Treasury Department says it has been using workarounds, or what it calls \u201cextraordinary measures,\u201d to keep the government paying its bills on time.\u00a0<\/p>\n

\n
\n
\n
\n
<\/source><\/source><\/picture><\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/section>\n

But Treasury Secretary Janet Yellen says those efforts will be exhausted in the coming week and the U.S. could run out of money to meet all its obligations as soon as June 1. The Treasury Department doesn’t <\/strong>know the exact date, since there is a constant flow of money coming in and out of the federal coffers, but Goldman Sachs projects the date could be closer to June 8 or 9, and the Bipartisan Policy Groups says<\/a> the date is likely between June 2 and 13.<\/p>\n

Follow along for live updates<\/em><\/strong><\/p>\n

Regardless of the exact date, without legislative action, the U.S. is days away from not being able to pay all of its bills, something that has never happened before. Like anyone facing a budget crunch, Yellen will have to determine who gets paid and when \u2014 until the country gets another influx of tax payments expected in mid-June, according<\/a> to the Bipartisan Policy Center.\u00a0Those payments could keep the federal government cash positive until mid-July. <\/p>\n

Yellen hasn\u2019t given many details on what specifically would happen once the country\u2019s bills outstrip<\/a> its revenues, but economists and former government officials have some theories on who might get paid and how.<\/p>\n

<\/source><\/source>\"Treasury<\/picture>
Janet Yellen speaks at the Treasury Department on April 11.<\/span>Susan Walsh \/ AP<\/span><\/figcaption><\/figure>\n

Debt holders first in line?<\/strong><\/p>\n

One option for Yellen would be to pay bondholders the interest they are owed on U.S. Treasuries first and delay paying all other bills, like Social<\/a> Security and veterans benefits, until the government has enough money to do so, said economists and budget policy experts. That was a strategy Treasury officials said they had gamed out in 2011<\/a> when the U.S. came close to default back then.\u00a0<\/p>\n

Failing to pay bondholders would likely have the biggest repercussions across the economy because of the chaos it would create in the financial markets, since Treasuries are seen as one of the safest investments in the world.<\/p>\n

A failure to make those payments would almost certainly trigger a downgrading of the U.S. credit rating, making it more expensive for the government to borrow money and driving up interest rates for anyone else looking to borrow money for a home, car or with a credit card, said economists.\u00a0 It would also cause banks to significantly pull back on lending, cutting off lines of credit to businesses that need to borrow money for everything from an expansion to making that month\u2019s payroll. The value of the dollar would also be affected, having an impact on companies that buy or sell goods overseas.\u00a0<\/p>\n

But even if the U.S. doesn\u2019t default on its debt payments, the risk of coming so close and not being able to make other payments could be enough for the rating agencies to downgrade the U.S. credit rating, as in 2011 when S&P downgraded the U.S. when it came perilously close to a default.<\/p>\n

Giving priority to bondholder payments could also come with political consequences for the Biden administration if it\u2019s viewed as investors getting paid while others, like Social Security recipients, miss getting their checks on time.\u00a0<\/p>\n

\u201cPolitically it is a disaster because you are effectively paying a Chinese bondholder before you are paying someone\u2019s Social Security payment,\u201d said Stephen Myrow, a managing partner of Beacon Policy Advisors, who worked in the Treasury Department during the Obama administration.<\/p>\n

Delay in government payments<\/strong><\/p>\n

Prioritizing payments outside of what\u2019s due to debt holders gets more complicated since picking and choosing which of the thousands of bills get paid would be a politically, logistically and legally fraught endeavor for Yellen and President Joe Biden.\u00a0<\/p>\n

Yellen has said<\/a> that the Treasury isn\u2019t set up to do it and that failure to meet any payments \u2014 whether to debt holders or veterans \u2014\u00a0 would be considered a default.\u00a0<\/p>\n

Given the payment system the federal government uses, it might not even be logistically feasible at this point to issue some payments, such as to Social Security recipients, and not to others, such as federal workers, said Shai Akabas, director of economic policy at the Bipartisan Policy Center. If some groups got paid and others didn’t, it could also open the administration to legal challenges.<\/p>\n

As an alternative, policy experts expect Yellen would hold off on paying all other bills until the U.S. has enough revenue in its accounts to pay all the bills at once. That could mean a delay of several days for those expecting government benefits, which are scheduled to go out for some beneficiaries on June 2. The longer the impasse goes on, the longer the delay would become.<\/p>\n

\u201cWe assume that the U.S. Treasury would continue to make principal and interest payments on time, but they would postpone making noninterest payments until they had enough money in the checking account to be able to pay all of that day’s noninterest obligations all in one fell swoop, not prioritizing them and making sure they had enough money to make interest payments,\u201d said Wendy Edelberg, director of the Hamilton Project and a senior fellow at the Brookings Institution.<\/p>\n

The delay in payments would likely be relatively short-lived because the U.S. is set to get an influx of tax payments on June 15, which could provide enough cash to get the country through July before it once again runs into a cash crunch, Akabas said.<\/p>\n

A much bigger disruption, though, would likely come from the physiological effects of the U.S. not being able to pay all its bills. Stocks could drop 20% in that scenario, similar to declines seen during the financial crisis of 2008, according to a report<\/a> from UBS.\u00a0<\/p>\n

What’s the difference between a default and a shutdown?<\/strong><\/p>\n

A debt ceiling breach would look different from a government shutdown in a number of ways and would come with much greater consequences for the economy than a shutdown, which the U.S. has been through numerous times in recent years.<\/p>\n

\u201cWe know what a government shutdown looks like, we have been there before, it doesn\u2019t look pretty but it also isn\u2019t catastrophic,\u201d said Akabas. \u201cWith the debt limit it is totally uncharted territory and we could see ramifications that would affect every American household.\u201d\u00a0<\/p>\n

A government shutdown is triggered when Congress fails to pass legislation to fund the government. As a result, federal workers aren\u2019t paid, nonessential workers stay home and certain services that receive federal funding, such as the National Parks, are closed. But mandatory programs, like Medicare and Social Security, aren’t affected. <\/p>\n

But in the case of a debt ceiling breach, all federal spending is affected, including Medicare payments, Social Security checks and veterans benefits. Federal workers would likely still be required to report to work, but may not get paid on time. <\/p>\n

Coins and the 14th Amendment<\/strong><\/p>\n

Several workarounds have been proposed by economists and former policymakers, but Yellen and other top administration officials have largely ruled those out.\u00a0<\/p>\n

One proposal has been the minting of a $1 trillion platinum coin by the U.S. Mint that the Treasury could deposit with the Federal Reserve. A law from the 1990s gives the mint the authority to produce coins in any denomination, but Yellen has called the move a \u201cgimmick\u201d and Federal Reserve Chairman Jerome Powell has indicated<\/a> he wouldn\u2019t accept the coin.<\/p>\n

The Treasury could also reissue bonds, putting old bonds up for auction with a higher rate, which would help to bring in additional money without adding debt. But economists said this new form of debt could create chaos in the financial markets that could be as bad as what would be seen from a default.<\/p>\n

Another proposal has been for Biden to invoke the 14th Amendment that says the \u201cvalidity of the public debt shall not be questioned,\u201d which some have interpreted as saying the debt ceiling is unconstitutional. Under that interpretation, the U.S. can continue issuing debt to raise money, assuming investors are willing to buy it and confident it would be held up in court.\u00a0<\/p>\n

Biden said he has considered invoking the 14th Amendment but acknowledged it would likely end up in court \u2014 essentially causing a default while the move is litigated.\u00a0\u00a0<\/p>\n

Another option would involve action by Congress. If House Speaker Kevin McCarthy is unwilling to bring a bill to raise the debt ceiling to the floor without the funding cuts Republicans demand and Democrats oppose, a majority of members could bring it to the floor themselves. It’s unlikely there is enough support for this so-called discharge petition option or time given the lengthy process involved.<\/p>\n

Even if one of those proposals was acted upon, it still doesn\u2019t get around the larger psychological effects that would occur in the global financial markets if the U.S. were in a position where it couldn\u2019t pay all its bills, said Edelberg.\u00a0<\/p>\n

\u201cAll these workarounds people are thinking of, those don\u2019t solve the basic problem that in the aftermath you will have all this consternation because holy smokes we can\u2019t\u2019 even do this basic level of governing and in the meantime it\u2019s all up to the court to determine if some Treasuries issued were illegally issued,\u201d said Edelberg. \u201cNone of these workarounds avoid the worst of the problem.\u201d<\/p>\n


<\/div>\n

If you liked the article, do not forget to share it with your friends. Follow us on\u00a0Google News<\/a><\/span>\u00a0too, click on the star and choose us from your favorites.<\/span><\/strong><\/p><\/blockquote>\n

\n

For forums sites go to Forum.BuradaBiliyorum.Com<\/a><\/span><\/strong><\/p>\n<\/blockquote>\n

\n

If you want to read more News<\/a> articles, you can visit our News category.<\/a><\/span><\/strong><\/p>\n<\/blockquote>\n

Source<\/a><\/span><\/p>\n","protected":false},"excerpt":{"rendered":"

WASHINGTON \u2014 With congressional leaders seemingly at a stalemate over a deal to raise the nation\u2019s debt ceiling, the risks are growing that the U.S. could run out of money to pay all its bills by as early as next week \u2014 putting the country in uncharted waters as to what happens next. The debt…<\/p>\n","protected":false},"author":1,"featured_media":576000,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"fifu_image_url":"https:\/\/media-cldnry.s-nbcnews.com\/image\/upload\/t_nbcnews-fp-1200-630,f_auto,q_auto:best\/rockcms\/2023-05\/230524-capitol-dome-mn-1520-8a85d6.jpg","fifu_image_alt":"","footnotes":""},"categories":[70897],"tags":[],"class_list":["post-575999","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-news"],"_links":{"self":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/posts\/575999","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/comments?post=575999"}],"version-history":[{"count":0,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/posts\/575999\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/media\/576000"}],"wp:attachment":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/media?parent=575999"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/categories?post=575999"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/tags?post=575999"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}