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The president of the House of Representatives, Kevin McCarthy, addresses journalists at the Capitol. JIM LO SCALZO (EFE)
There is some more time for negotiation. Until now, no one knew for sure when the date X would be when the United States would run out of money to meet its payments if the debt ceiling was not raised. The Secretary of the Treasury, Janet Yellen, had pointed to the beginning of June without specifying a date and indicating that “potentially” there would be a risk on June 1, so that date had been somewhat marked. Now, Yellen has been more precise and there is more time for negotiation, at least until June 5.
Knowing how farsighted Yellen is, one would have expected that stating in a somewhat generic way June 1 was a way of urging the parties to sign an agreement. A new letter to Congress now leaves a little more time when entering a decisive phase of the negotiation. The parties have approached positions and the pact is beginning to take shape, although the figures have not materialized and there is resistance among the most extremist wings of the Republican and Democratic Parties.
“Since January, I have stressed to you the risk that the Treasury would not be able to meet all of our obligations by early June if Congress did not raise or suspend the debt limit before that date,” Yellen said in her new letter, addressed to the president. of the House of Representatives, Kevin McCarthy, and the rest of the leaders of Congress. “In my letters, I also indicated that I would continue to report to Congress as more information became available. Based on the most recent data available, we now estimate that the Treasury will not have sufficient resources to meet the Government’s obligations if Congress has not raised or suspended the debt limit by June 5,” he adds.
Yellen confirms that the government has money to make more than $130 billion in scheduled payments in the first two days of June, including payments to veterans and Social Security and Medicare beneficiaries. Those payments will leave the Treasury with an extremely low level of resources, Yellen explains.
“During the week of June 5, the Treasury is expected to make payments and transfers of about $92 billion, including a regularly scheduled quarterly adjustment that would involve an investment in the Social Security and Medicare trust funds of about $36,000. millions of dollars. Therefore, our anticipated resources would be insufficient to meet all these obligations, ”he adds. June 5 is Monday and the secretary speaks first of that date and then of “the week of June 5”, which seems to hypothetically leave room for some extra day. At the same time, once the agreement is reached, it is necessary to process it in Congress, which also takes a few days.
Damage to the economy
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The Treasury secretary insists that waiting until the last minute to suspend or increase the debt limit can seriously damage business and consumer confidence, raise short-term borrowing costs for taxpayers and negatively affect the United States credit rating. “In fact, we’ve already seen Treasury borrowing costs rise substantially for securities maturing in early June,” she says. The annualized return on bills maturing in the first days of June had come to more than 7%. Now, those letters are safe and the problem is delayed for a few days.
The non-payment of some obligations does not necessarily imply the non-payment of the financial debt. In order to default, it would be necessary for the Treasury to default on any interest payment or fail to pay any due date.
Yellen explains that this Thursday the Treasury used an additional extraordinary measure that it had already used in several previous episodes of crises due to the debt limit: an exchange of approximately 2,000 million dollars of Treasury securities between the Administration’s Retirement and Disability Fund Public and the Federal Financing Bank. “Although this measure has not been used since 2015 due to its limited size, the extremely low level of remaining resources demands that it exhaust all available extraordinary measures to avoid not being able to meet all of the government’s commitments,” Yellen explains.
The International Monetary Fund (IMF) has requested this Friday in Washington an immediate solution to the problem of the debt ceiling and has demanded a permanent remedy so that it does not repeat itself on a recurring basis. After meeting with the secretary of the treasury, Janet Yellen, and with the president of the Federal Reserve, Jerome Powell, the managing director of the IMF, Kristalina Georgieva, has insisted on the need to find a solution in the press conference in which she has presented the findings of its annual review of the US economy.
“Getting a good result is paramount from a global perspective. We think of US Treasury debt as an anchor for the global financial system. And this anchor needs to stay strong. So at a time of significant uncertainty, let’s not add a self-inflicted wound to those already suffered by the global economy. There is some encouraging news that the discussions are moving forward. But the world is watching and the world is saying, ‘Okay, let’s close this. And please, can you come up with a different way of approaching this issue?” Georgieva said.
The agreement is taking shape. It would be about extending the debt ceiling for two years in exchange for imposing spending limits for the same period. That would cover what’s left of Joe Biden’s presidency. The spending limits would not affect military spending or veterans’ payments and would focus on other programs, but they would not be as aggressive as those included in the first Republican proposal, passed as a bill in the House of Representatives. However, the figures have not been decided and the negotiations, which will continue over the weekend, could derail. Now there is just over a week ahead.
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