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Thursday, October 21, 2021

USA. Treasury Secretary Janet Yellen warns Congress of administrative bankruptcy and financial crisis

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US Treasury Secretary Janet Yellen warns that the administration will go bankrupt if Congress fails to raise the current public debt limit. According to her estimates, the funds are to end on October 18. The Republicans blocked the raise of the limit in the Senate on Monday.

“It is uncertain whether we would still be able to honor all of the state’s commitments after this date,” Yellen wrote in a letter to Congressmen. She stipulated that the date of October 18 is based only on estimates of variable cash flows. Yellen had previously warned that failure to raise the limit would mean “financial crisis and catastrophe.”


Increasing the limit of public debt in the US

The letter was sent after Republican senators on Monday blocked a bill containing a clause to suspend the current limit along with a provisional budget ensuring a short-term continuation of the current budget. Such a provisional budget must be adopted by the end of the current fiscal year – which ends on Thursday at the end of September – to avoid the so-called shutdown, that is, the shutdown of most federal institutions.

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Republicans said they would support a short-term budget alone, but not in conjunction with a debt limit suspension. Senator Mitt Romney suggested that Democrats could raise the cap themselves by joining it with a giant $ 3.5 trillion welfare extension bill. The ruling party does not need Republican votes to pass this bill, but the bill is subject to fierce debate within the Democratic Party and it is not known whether it will be passed before October 18.


Raising the debt ceiling and the platinum coin

All this means that the issue of raising the debt limit is not a foregone conclusion, and the risk of formal bankruptcy may be higher this time than ever before.

The issue of raising the debt ceiling was for many years in the US mainly a formality, but in the face of political polarization in the last decade, there have been several disputes over this topic. Faced with enormous consequences for the economy, a compromise was ultimately reached every time.

These disputes fuel the debate on the complete abolition of the debt ceiling. According to some economists, such as the Nobel laureate Paul Krugman, a way to circumvent the limit and regular crises could be, for example, the minting of a platinum coin worth a trillion dollars, with which the state could pay off its debt.

Main photo source: PAP / EPA / KEVIN DIETSCH / POOL

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