Last week, Treasury Secretary Janet Yellen warned congressional leaders that the US is expected to default on its national debt in October if the White House and Congress are unable to raise the debt ceiling yet again.
In a letter on Wednesday 8th, Yellen said that Treasury Department would effectively run out of money and exhaust ‘extraordinary’ measures to keep the federal government within its mandated limit some time next month.
However, the thing with lines in the sand is that they can always be redrawn once the tide comes in.
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“Once all available measures and cash on hand are fully exhausted, the United States of America would be unable to meet its obligations for the first time in our history,” said Yellen.
“Given this uncertainty, the Treasury Department is not able to provide a specific estimate of how long the extraordinary measures will last. However, based on our best and most recent information, the most likely outcome is that cash and extraordinary measures will be exhausted during the month of October,” she added.
Demonstrating the facade regarding the alleged separation of state powers, Yellen wrote the letter to house Speaker Nancy Pelosi, House Minority Leader Kevin McCarthy, Senate Majority Leader Charles Schumer and Senate Minority Leader Mitch McConnell.
The department has taken extreme measures in order to prevent the US from sliding into defaulting on its national debt when the debt limit was adjusted on August 1st. In other words, the US is unable to pay off its debts despite the trillions of dollars in cash injections to stimulate growth since 2020. Defaulting on debts would send shock waves throughout the global financial system, highlighting the need for hard forms of money once more.
For months, Yellen has urged lawmakers to increase the debt limit before it was reimposed, warning that a delay could “cause irreparable damage to the US economy and global financial markets”.
Yellen, it seems, has seen the writing on the wall that sound-money advocates have been arguing strongly for this past year.
She has since pleaded with Congress to give Treasury the ability to pay debts already approved by previous presidents and congressional majorities.
“Waiting until the last minute to suspend or increase the debt limit can cause serious harm to business and consumer confidence, raise short-term borrowing costs for taxpayers, and negatively impact the credit rating of the United States,” Yellen warned.
“At a time when American families, communities, and businesses are still suffering from the effects of the ongoing global pandemic, it would be particularly irresponsible to put the full faith and credit of the United States at risk.”
Still, US politicians are locked in a stalemate over who bears responsibility for seemingly protecting deteriorating trust and credit of the United States.
White house and Democratic leaders are looking to tie in a debt limit increase to another government stimulus bill, potentially egging on Republicans to trigger a shutdown and a default by opposing the measure.
“We fully expect Congress to act promptly to suspend the debt limit and protect the full faith and credit of the United States and we expect them to do that in a bipartisan way just as they did three times during the prior administration,” said a White House official on Tuesday.
So far, US politicians have refused to raise the debt ceiling unless spending cuts and debt reduction programs are in place. But if history is a guide, the US will likely find a middle-ground that will ultimately result in increased spending and modest-to-insignificant cuts.
As politicians play politics, bitcoin and crypto lie in wait.
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