WASHINGTON, Jan 13 (Reuters) - U.S. Treasury Secretary Janet Yellen said on Friday the United States will likely hit the $31.4 trillion statutory debt limit on Jan. 19, forcing the Treasury to launch extraordinary cash management measures that can likely prevent default until early June.
"Once the limit is reached, Treasury will need to start taking certain extraordinary measures to prevent the United States from defaulting on its obligations," Yellen said in a letter to new Republican House of Representatives Speaker Kevin McCarthy and other congressional leaders.
She urged the lawmakers to act quickly to raise the debt ceiling to "protect the full faith and credit" of the United States.
"While Treasury is not currently able to provide an estimate of how long extraordinary measures will enable us to continue to pay the government's obligations, it is unlikely that cash and extraordinary measures will be exhausted before early June," the letter said.
Republicans now in control of the House have threatened to use the debt ceiling as leverage to demand spending cuts from Democrats and the Biden administration. This has raised concerns in Washington and on Wall Street about a bruising fight over the debt ceiling this year that could be at least as disruptive as the protracted battle of 2011, which prompted a brief downgrade of the U.S. credit rating and years of forced domestic and military spending cuts.
The White House said on Friday after Yellen's letter that it will not negotiate over raising the debt ceiling.
"This should be done without conditions," White House spokesperson Karine Jean-Pierre told reporters. "There’s going to be no negotiation over it."
House Republicans are planning to move a "debt prioritization" measure by the end of March that would call on the U.S. Treasury to continue making certain payments once it reaches the debt ceiling, but details have not been finalized, a person familiar with the plan told Reuters. The proposal was first reported by the Washington Post.
The Republican plan will call on the Treasury Department to keep making interest payments on the debt, the Post reported, citing sources. It may also stipulate the Treasury should continue making payments on Social Security, Medicare and veterans benefits, and fund the military, the newspaper said.
The plan was part of a private deal reached this month to resolve the standoff between right-wing hardliners in the House and McCarthy over his election as House speaker, the Post said.
Yellen's estimate expressing confidence that the government could pay its bills only through early June without increasing the limit marks a deadline considerably sooner than forecasts by some outside budget analysts that the government would exhaust its cash and borrowing capacity - the so called "X Date" - sometime in the third quarter of calendar 2023.
Analysts have noted that some Treasury bills maturing in the second half of the year are sporting a premium in their yields that may be tied to elevated risk of a default in that window.
"You could read this partly as trying to get Congress to act sooner rather than later," said Bipartisan Policy Center economics director Shai Akabas, adding that Treasury was being conservative in its approach.
Yellen said that there was "considerable uncertainty" around the length of time that extraordinary measures could stave off default, due to a variety of factors, including the challenges of forecasting the government's payments and revenues months into the future.
PENSION INVESTMENTS SUSPENDEDAs of Wednesday, Treasury data showed that U.S. federal debt stood $78 billion below the limit, with a Treasury operating cash balance of $346.4 billion. The department on Thursday reported an $85 billion December deficit as revenues eased and outlays grew, particularly for debt interest costs.
Yellen said in her letter that the Treasury this month anticipates suspending new investments in two government retiree funds for pensions and healthcare, as well as suspending reinvestments in the Government Securities Investment Fund, or G Fund, part of a savings plan for federal employees. The retirement investments are restored once the debt ceiling is raised.
"The use of extraordinary measures enables the government to meet its obligations for only a limited amount of time," Yellen wrote to McCarthy and other congressional leaders.
"It is therefore critical that Congress act in a timely manner to increase or suspend the debt limit. Failure to meet the government’s obligations would cause irreparable harm to the U.S. economy, the livelihoods of all Americans, and global financial stability," Yellen wrote.
https://www.reuters.com/markets/us/yellen-urges-us-congress-act-quickly-debt-limit-2023-01-13/....
Raising the US debt ceiling has been a hot topic over the past two years.
Everytime the topic emerges in news cycles. I wonder what would happen if the US defaults. And all of the americans on state pension, welfare, unemployment, food stamps and other programs no longer receive their monthly checks. The worst case scenario, is not a good one.
Retired americans on social security are the largest viewer demographic for television news. They don't know who Alex Jones is. They're typically insulated from the information and news stories making the rounds on social media and the internet. Which means they could be the most surprised and unprepared demographic, if a US default were to occur.
Pension earning americans are also usually the most likely demographic to preach job security. College education. Pulling oneself up by their boot straps. They're the most likely age bracket to look down upon younger generations for not being as successful or independent on an age comaprison basis. Netizens typically refer to them as "boomers".
I don't know what type of motivation or reasoning people need to try harder to be more successful and have a larger margin of safety for their futures. For me, the thought of millions of americans across the country losing their sole source of income simultaneously, in the event of a US default. Has to be one of the more motivating trends I have seen over the past two years. The united states thus far, hasn't see the type of riots or widespread social upheavel that other nations have post 2020.
But I think that if the US defaults on its debt. And it slowly begins to dawn on the entire country, what that would mean for them and their bottom line. We could see some significant shifts that have been silent thus far. And that things might get ugly.
