Negotiators in the US debt dispute have more time to reach an agreement, according to a new estimate from the Treasury Department. Treasury Secretary Janet Yellen said Friday that the federal government could default on June 5 without an agreement on a higher debt ceiling. Until now, she had given June 1 as the earliest date for this.
For weeks, Democrats and Republicans have been fighting in difficult rounds of negotiations about raising the debt limit. The new date gives the two negotiating parties a break. It can also only prolong the argument. US President Joe Biden said on Friday evening (local time) that an agreement was within reach.
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 limit has been reached for months, the US can only stay afloat with financial policy tricks – called “extraordinary measures” in industry jargon. Yellen said if the US waited until the last minute to raise the limit, the consequences could already be serious.
US creditworthiness could suffer
As early as 2011, a Republican majority in the US parliament had postponed 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 its highest rating of “AAA” at the time and has since rated only the US at “AA+” – meaning one rating lower.
The rating agency Fitch also threatened this week with a possible downgrade of the highest 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.
Financial crisis and job loss
In the United States, parliament decides how much money the state can borrow. This repeatedly leads to discussions about raising the upper limit if the ruling party does not have a majority in both chambers of Congress. An unprecedented bankruptcy of the US government could lead to a global financial and economic crisis. In the United States, economists and labor market experts fear that millions of people could lose their jobs as a result.
Source: Krone
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