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US Treasury Secretary warns of default on June 1st

US Treasury Secretary warns of default on June 1st

Treasury Secretary Janet Yellen has warned that unless the US debt ceiling is raised soon, the government could default on an unprecedented scale.

In the row over the US debt ceiling, Treasury Secretary Janet Yellen is increasing the pressure and is already warning of a possible government default on June 1st. However, reserves can also be used after only a few weeks, and it is impossible to predict the exact date. Estimate is based on currently available data. If the debt ceiling is not raised soon, there could be unprecedented deficits by the US government – which could plunge the global economy into crisis.

In the United States, Parliament places a debt ceiling at irregular intervals and limits the amount of money the state can borrow. The debt ceiling is currently around 31.4 trillion US dollars (about 28.6 trillion euros). Meanwhile, this debt ceiling has been reached and the US Treasury must draw on capital reserves – because now the US is no longer allowed to take on any new debt to pay its bills. US President Joe Biden and his fellow Republicans need to raise the debt ceiling. However, they oppose an increase without significant savings in some government spending.

A default by the world’s largest economy could lead to a global financial crisis and a severe economic downturn. The US would then be unable to pay most of its bills – millions of people could lose their jobs as a result. A default would also damage confidence in the creditworthiness of the United States, which could lead to economic turmoil. And Treasury Secretary Yellen made it clear over and over that that would be a disaster.

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credit reduction

Yellen had already warned in January of a default in early June. The independent US Congressional Budget Office recently estimated a default between July and September without raising the debt ceiling. The Treasury secretary warned that waiting until the last minute to suspend or raise the debt limit would hurt confidence in the US economy. Democrats and Republicans often come to an agreement on this issue shortly before the end. In 2011, the newly elected Republican majority in Congress delayed raising the debt ceiling. As a result, the credit rating of the United States was downgraded for the only time in history.

Republicans want to persuade President Biden to agree to cuts in climate protection investments and other government spending. In return, the US debt limit will be raised by $1.5 trillion. McCarthy himself is under a lot of pressure from some conservative Republicans, on whom he is counting given the slim majority in the House of Representatives. The Republican proposal that passed there now goes to the Democratic-led Senate, where it has been given no chance of success.

The American president does not want to be blackmailed

Biden made clear again on Monday that he does not want to be blackmailed. He invited McCarthy and other leaders of both parties in Congress to the White House on May 9. Senate Majority Leader Chuck Schumer said, “We don’t have the luxury of waiting until June 1st to meet to pass appropriate legislation to avoid default and catastrophic consequences for our economy and millions of barred American families.”

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The debt ceiling has been raised dozens of times since it was introduced in 1917, otherwise we would have run out of money. The new debt will not finance any additional spending – it will be used to meet obligations already undertaken. The debt ceiling should not be confused with the balance sheet. Here, too, there are regular arguments in Congress because Democrats and Republicans can’t agree on a new budget law, which could lead to government business being suspended and shut down.