Treasury Secretary Janet Yellen reiterated her warning that the US will run out of money by October 18, urging Congress to raise the debt ceiling before the Treasury’s “extraordinary measures” are completely exhausted.
In yet another letter addressed to House Speaker Nancy Pelosi and seen by Bloomberg, Yellen said that America will default on its debts if the ceiling is not raised ahead of the October deadline, as the Treasury’s resources continue to be depleted. “It is imperative that Congress swiftly addresses the debt limit. If it does not, America would default for the first time in history,” Yellen wrote, adding that “the full faith and credit of the US would be impaired, and our country would likely face a financial crisis and economic recession.”
Yellen also cautioned that failure to raise the borrowing limit will also lead to a significant interest rate spike, deteriorate confidence in the US dollar as the world’s reserve currency, as well as severely disrupt financial markets. On Monday, the Senate failed to pass the bill that would raise the debt ceiling, as a number of Republicans in the upper chamber of Congress refused to vote in favour. A second attempt by the Senate on Tuesday to approve the limit suspension also heeded no positive results.
As one can imagine, the US has accumulated quite the heaping pile of debt since the beginning of the pandemic— a few emergency stimulus packages with more en route, as well as bottomless military expenditures. All of these have sent the national debt to an eye-watering level of $29 trillion. But the US defaulting on its own debt? Never— that would be unimaginable because at the end, both sides will eventually come to an agreement despite Yellen’s sensational theatrics— albeit at the last second.
Although raising the debt ceiling may be an effortless task for House— Nancy Pelosi’s Democrats do after all, have a monopoly. However, significant pushback is expected from the Senate, where Republicans will strongly oppose raising the debt ceiling not because they want the US default on its own debt, but rather to create an extraordinary theatrical scene in opposition of Biden’s billowing spending plans.
With the Biden administration preparing to embark on an ambitious spending agenda on healthcare and eduction that the Republicans see as simply nauseating, they will attempt to enforce budget cuts and squash the president’s plans before they even come to fruition. They are also out for political vindication, particularly after the hostility of the Trump era. And, what better way to do that than an impending Congressionally-set debt ceiling.
Both Republicans and Democrats very well know that the spending limit will ultimately need to be raised or suspended, otherwise the subsequent debt default would be proportionate to a nuclear bomb detonating on the US economy. With that in mind, we can expect an extraordinary political drama bursting with hysterical congressional showdown— but certainly not a debt default. The Federal Reserve’s printing press will continue to spew trillions of dollars in order to keep up with government spending, while China continues to buy US Treasuries— the communist country, after all, has already accumulated $1.1 trillion of them.
Information for this briefing was found via Bloomberg. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
