The emergency measures ordered by the United States Treasury could be extended for less time than expected and, if there is no agreement between Democrats and Republicans to extend or suspend the debt limit that the Government has, the country will fall into default .
In the United States, by the Constitution, all types of debt taking must be authorized by Congressand since 1917, and due to the urgency of the expenses of the First World War, the parliament by law modified the method establishing a ceiling on the amount of debt that the country can take.
The United States periodically reaches this limit – it has done so 78 times since 1960 – which usually requires a bipartisan agreement (Democrats and Republicans) to be able to increase it or temporarily suspend it. Otherwise, it would default on payments, a situation it has never reached in its history.
The current debt limit, increased for the last time in 2021, is US$ 31.4 trillion and it was already reached on August 19.
The measures taken by the Treasury
At that point, the Treasury began a series of emergency measures to buy Congress more time, including using the invested proceeds of two government retirement funds to pay down the obligations.
However, these measures can only last for a short time and both Democrats and Republicans have shown no progress so far towards an agreement.
Republicans would only agree to approve an increase in the debt limit in exchange for future cuts in public spending, a commitment that the Joe Biden administration rejects.
Biden in his State of the Union address last Tuesday, questioned Republicans for holding the economy “hostage” through the debt limit and, in the process, seek cuts to Social Security or the Medicare health coverage program.
However, times are shortening and the Treasury’s emergency measures could be extended for less than expected given that the federal budget deficit is increasing rapidly, according to the latest estimates from the Congressional Budget Office released by the Bloomberg agency.
In the first four months of the fiscal year – which began on October 1 – the deficit totaled US$459 billion, US$200 billion more than in the same period a year ago, and could even have been US$522 billion. if there had not been date changes in some payments.
According to the Secretary of the Treasury, Janet Yellen, the emergency measures to avoid default could be extended until the beginning of next June, but the acceleration of spending could reduce this margin of time.
One of the reasons for the lower collection is the lower income from taxes on capital gains, given the weakening compared to 2021 and 2022 that the stock markets are suffering, the reduction in transfers from the Federal Reserve, lower tax income from corporate taxes, and, in the opposite direction, more spending on social security.
In fact, last week, the Treasury had to increase its funding estimates for the current quarter.
A fall into default would imply an almost guaranteed recession for an economy that, despite the slowdown in recent months, maintains a solid labor market.
Last January, the country added 517,000 jobs, while the unemployment rate fell one tenth to 3.4%, a minimum in 53 years, according to data published last week by the Labor Department’s Bureau of Statistics (BLS). .
According to the same area, in the week that ended on February 4, about 196,000 people applied for new unemployment benefits after being laid off, which meant an increase of 13,000 requests compared to the previous week, the first increase in six weeks.
