The Treasury Department will now begin to conduct the emergency conservation steps from Monday. This will help to avoid the busting of the federal borrowing limit after at least 2years of suspension of the debt ceiling.
Economists are saying that these measures will allow the Treasury to pay off the bills of the government without any debt for 3 months. After that, Congress will need to either suspend or raise the limit of brewing.
The limit is a facet of American politics for over a century. It prevents the Treasury from issuing new bonds to fund the activities of the government after reaching a certain level. The level has reached $22 trillion in August of 2019.
This new limit of the debt will include the additional borrowing of Washington since 2019. The Congressional Budget Office has estimated in July that this new cap will head to $28.5 trillion.
Though the Federal government has opted for no defaulting, the economists are saying that it will have a negative effect.
“The government needs to have funds, for example, to pay interest on its debt, and if it were to stop paying interest, that could be extremely unsettling for financial markets,” Harvard University economics professor Karen Dynan said.
These funds are necessary to pay the government workers and to send out Social Security checks. Still, the economic calamity has not stopped the politicians from using the debt ceiling as a political football. During the administration of Obama, the republicans often used the spear of the default as leverage to win spending reductions. But with the Democrats having marginal control in the House and Senate is echoing a consensus view. It is not too concerned about the neutral compromise.
The Treasury Department has denied commenting on this story. However, Janet Yellen has sent a letter as per reports.
“The period that extraordinary measures may last is subject to considerable uncertainty due to a variety of factors, including the challenges of forecasting the payments and receipts of the U.S. government months into the future, exacerbated by the heightened uncertainty in payments and receipts related to the economic impact of the pandemic,” the Treasury secretary wrote.
Credits: CNBC
