Congress breaches debt limit: Treasury Department will take cash safeguard measures

Congress breaches debt limit: Treasury Department will take cash safeguard measures

Congress has the opportunity to seek mechanisms to have a ceiling on public debt.

Photo: John Guccione / Pexels

The Treasury Department announced that it will begin taking emergency cash conservation measures starting today to avoid exceeding the federal debt limit after a two-year debt ceiling suspension expires in late July.

According to CNBC, experts said the measures will allow the Treasury pay government debts without new debt for two to three months. After that, Congress will have to increase or suspend the debt limit or risk the United States defaulting on its obligations.

The cap, a facet of American policy for more than a century, prevents the Treasury from issuing new bonds to fund government activities once a certain level of debt is reached. That level reached $ 22 trillion in August 2019 and was suspended until last Saturday.

The new debt limit will include Washington’s additional loans from the summer of 2019. The Congressional Budget Office estimated in July that the new limit will likely hit just $ 28.5 trillion.

Although the federal government has never defaulted, CNBC said experts say such an event would have disastrous effects on the US economy by spiking interest rates.

Harvard University economics professor Karen Dynan said that “The government needs to have funds, for example, to pay interest on its debt, and if you stopped paying interest, that could be unsettling for the financial markets”.

The extraordinary measures allow the Treasury to bail out certain investments in federal pension programs and stop new ones to generate cash without increasing total debt. But when those methods are exhausted, there is no backup.

Unless the government floats new Treasury bonds, Social Security payments, Medicare, military spending, interest on American debt, and other obligations simply stop.

As this happens at the Federal Reserve, Nancy Pelosi must not only accumulate enough votes in Congress to approve a suspension of the debt ceiling or an increase, but she must also protect her small majority.

An aide to the Democratic leadership of the House of Representatives told CNBC that discussions on the roof are ongoing and that the party’s top lawmakers will not risk America’s full faith and credit.

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