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U.S. Treasury Secretary Yellen warns on debt limit

Yellen
(AP Photo/Andrew Harnik)

US Treasury Secretary Janet Yellen has warned against continuing with the current debt ceiling, calling for the need to increase or suspend it.

Yellen confirmed that the current debt ceiling will prompt the Treasury Department to “exceptional measures” to prevent the United States from defaulting on debt payments by August 2.

Earlier, Yellen informed the US House of Representatives that the current debt will reach the legal limit, by early August.

Debt ceiling

A dispute broke out between representatives of the Republican and Democratic parties over raising the debt ceiling in Congress.

Yellen, in the letter also sent to other senior members of Congress from both parties, said: “Today, Treasury is announcing that it will suspend the sale of State and Local Government Series (SLGS) securities at 12:00 p.m. on July 30, 2021.”

The letter said the suspension would continue until the debt ceiling was suspended or increased.

“If Congress has not acted to suspend or increase the debt limit by Monday, August 2, 2021, Treasury will need to start taking certain additional extraordinary measures in order to prevent the United States from defaulting on its obligations,” Yellen added.

A failure to work out differences among lawmakers over whether government spending cuts should accompany an increase in the statutory debt limit, currently set at $28.5 trillion, could lead to a federal government shutdown – as has happened three times in the past decade – or even a debt default.

Government bankruptcy

Meanwhile, Yellen warned, of the risk of the government’s bankruptcy and inability to meet its financial obligations by next October, if Congress does not approve of raising the US public debt ceiling.

She pointed out that the cash liquidity and special procedures at the Treasury Department will decrease by $150 billion on the first of next October, “due to a lot of mandatory payments”.

Yellen said the Treasury Department could not provide definitive estimates of how long the extraordinary measures would continue to be effective given the severe uncertainty over payments and revenues during the coronavirus pandemic.

Yellen’s warning came after a report by the Congressional Budget Office last Wednesday, which said that it is likely that members of Congress will not raise the public debt ceiling or extend the suspension of commitment to it until next October or November.

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