The United States government needs Congress to fund its budget. In the Wall Street Journal, the Secretary of the Treasury predicts a historic financial crisis if the debt ceiling of $ 28.4 trillion is not exceeded.
US Treasury Secretary Janet Yellen chose the Wall Street Journal to alert public opinion: if Congress does not raise the debt ceiling, it risks causing “a historic financial crisis,” she wrote in a column. “The default could trigger a surge in interest rates, a sharp drop in stock prices and other financial turmoil,” adds US Treasury Secretary Joe Biden.
The debt ceiling, which only Congress has the prerogative to raise, came into effect on August 1. It prohibits the United States from issuing new loans to finance itself if the current limit of $ 28.4 trillion is not raised. This recovery is regularly the subject of political arm wrestling in Congress. Since the 1960s, the debt ceiling has been raised or suspended some 80 times.
Last week, the Treasury services warned that the federal state would run out of money “in October”. Janet Yellen describes in her editorial the possible effects of a default. For example, she imagines that in a few days, millions of Americans could be short of money; that nearly 50 million older people may stop receiving social security checks for some time; that troops may not be paid; or that millions of families who depend on the monthly child tax credit may experience delays. “America, in short, would fail in its obligations,” summarizes the Secretary of the Treasury.
Even if the United States has never failed – “not once”, underlines Ms. Yellen – she recalls the episode of 2011 “which brought America to the brink of crisis”. Under the Obama administration, the political deadlock in Congress even led the Standard and Poor’s rating agency to withdraw the “AAA” rating from US debt, causing a shock wave in the markets.
Anything bought on credit
Finally, Janet Yellen, who also has a doctorate in Economics, recalls the advantage of a strong signature on a country’s sovereign debt, and the risks represented by a sudden rise in rates (which would occur if a large debtor was default): “We can borrow more cheaply than almost any other country, and a default would jeopardize this enviable fiscal position. It would also make America a more expensive place to live, as the higher cost of borrowing would fall on consumers. Mortgage payments, auto loans, credit card bills – anything bought on credit would be more expensive after default. ”
In conclusion, the US Treasury Secretary disputes that such a blockage can be justified in the name of “fiscal responsibility”, and stresses that 97% of the balance of the budget under debate was incurred by previous congresses and presidential administrations. “Even if the Biden administration had not authorized any spending, we would still need to tackle the debt ceiling now,” argues Janet Yellen.