USA: Treasury Secretary Yellen threatens state bankruptcy on June 5th

USA: Treasury Secretary Yellen threatens state bankruptcy on June 5th

There is always talk of progress in the US debt dispute. So far, however, no one has come up with a solution. But it should be within reach. Now Finance Minister Yellen has spoken out – with a new warning.

US Treasury Secretary Janet Yellen has increased her pressure on the US debt dispute and updated her forecast of the impending default. Based on the latest available data, she now estimates her department would run out of funds if Congress doesn’t raise or suspend the debt ceiling by June 5, Yellen wrote Friday to the Republican speaker of the US House of Representatives. Yellen had previously warned of a possible government default in early June – possibly as early as June 1st. She now calls the new date with greater certainty. US President Joe Biden said on Friday evening (local time) that an agreement was within reach.

For weeks, Biden’s Democrats and Republicans have been arguing in tough rounds of negotiations about raising the debt ceiling. The new date gives the two negotiating parties a short breathing space. It could also just prolong the argument. Yellen made it clear that the situation was serious and that the treasury was almost empty. The debt ceiling is currently $31.4 trillion. This cap has already been reached for months, and the USA can only keep its head above water with financial policy tricks – known in technical jargon as “extraordinary measures”. Yellen said that if the US waited until the last minute to raise the cap, the consequences could already be serious.

US default could trigger global financial crisis

As early as 2011, a Republican majority in the US Parliament had delayed raising the debt limit for so long that the US credit rating was downgraded for the only time in history. The rating agency Standard & Poor’s dropped the top rating “AAA” at the time and has since rated the USA only “AA+” – one rating lower. The rating agency Fitch also threatened this week with a possible downgrading of the top credit rating. It is believed that the risk has increased that the debt ceiling will not be raised in time and that the US government will no longer meet its payment obligations, it said.

In the United States, Parliament decides the maximum amount of money the state can borrow. In the USA, this repeatedly leads to arguments about raising the upper limit if the governing party does not have a majority in both chambers of Congress. An unprecedented US government default could result in a global financial and economic crisis. In the United States, economists and labor market experts fear, millions of people could lose their jobs as a result.

Clear criticism from IMF chief Georgieva

The Republicans emphasized again on Friday that there was progress in the talks with the Democrats. But they also made it clear that there were always new points of contention that delayed an agreement. Biden, on the other hand, was optimistic and said he hoped to know in a few hours if there was an agreement. The Republicans, with their majority in the US House of Representatives, want to use the negotiations to cut spending on certain social programs. They are also calling for recipients of certain benefits to be required to work. The Democrats are opposed to this, arguing that this would hit the weakest in society even harder.

The head of the International Monetary Fund, Kristalina Georgiewa, also sharply criticized the United States on Friday. The stability of the global financial system is at stake, she warned. It is “frustrating” that an agreement on raising the debt ceiling is being waited until the last minute. It was just before twelve, she said.

Source: Stern

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