The United States government hit its $31.4 trillion debt ceiling on Thursday, prompting the Treasury Department to take drastic measures to alleviate the consequences of the situation.
The event comes as lawmakers are engaged in a standoff, pitting the Republican-led House of Representatives against President Joe Biden's Democrats, on how to lift the ceiling. However, such an action could result in a fiscal crisis in only a few months.
US Debt Ceiling
Treasury Secretary Janet Yellen told congressional leaders, including House Speaker Kevin McCarthy, that her department has already begun taking drastic measures to manage cash that could help stave off default until June 5.
Republican lawmakers, who have recently regained majority control of the House, seek to use the time that they have until the Treasury's emergency maneuvers are exhausted, to exact spending cuts from the president and the Democratic-led Senate.
Corporate leaders and at least one credit ratings agency have also warned that a long standoff could shake up markets and unsettle what is already an unstable global economy. Yellen also cautioned that the June date she said was subject to "considerable uncertainty" due to the difficulty of forecasting payments and government revenues many months in advance, as per Reuters.
In a letter on Thursday, the Treasury secretary said that she was respectfully urging Congress to promptly act to protect the full faith and credit of the U.S. government. However, there were no signs that either Democratic or Republican lawmakers were willing to compromise on their stances.
The GOP is trying to use its narrow majority in the House of Representatives along with the debt ceiling to force spending cuts to the Biden administration's programs. Republicans argued that the Treasury could avoid going into default during a standoff by prioritizing debt payments. While such an idea has been dabbled on in the past, financial experts question its feasibility.
On the other hand, the White House rejected the proposal, saying that there would be no negotiations over the debt ceiling. In a statement, White House deputy press secretary Olivia Dalton said that Congress needs to address the issue without conditions similar to what they did three times under former United States President Donald Trump's government.
Addressing the Issue
Last week, Yellen issued a warning about the approaching debt limit and the temporary band-aid of the extraordinary measures. However, she has failed to spark bipartisan discussion regarding the issue, according to CNN.
In a statement on Thursday, National Economic Council Director Brian Deese repeatedly called on Congress to meet the United States' obligations by raising the debt limit. He warned against the "economic chaos" that could result if lawmakers fail to act quickly.
The debt ceiling is described as the amount of money that the Treasury is authorized to borrow in order to pay its bills. These obligations include Social Security and Medicare benefits, tax refunds, military salaries, and interest payments on the outstanding national debt.
A senior economic analyst at Bankrate, Mark Hamrick, said that the situation was not unlike many households, saying that the government is reliant on debt to fund its obligations. He added that similar to other households, it does not have sufficient income to pay for its expenses, said CNBC.
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