The Treasury department has decided to start conducting emergency cash-conservation steps. It has taken this decision as Congress has missed the debt-ceiling deadline. The treasury department has taken this decision to avoid breaking the federal borrowing limit post two year suspension of debt ceiling that expired at the July end.
Many economists believe these extraordinary measures of the Treasury Department will allow it to pay off the government’s bills. And it will happen without the issuance of new debt for a time period of 3 months.
Besides, this decision will help Congress get more time for raising or suspending the debt ceiling. As per the mentioned limit in the American politics, Treasury cannot issue new bonds for funding government initiatives.
It is applicable once a certain level of debt is reached. And that debt level reached $22 trillion in August 2019 and it remained suspended until Saturday.
New Debt Limit to Come Near $28.5 Trillion
In the new debt limit, Washington’s additional borrowing will be included since summer 2019. As per the estimates of the Congressional Budget Office, the new cap is likely to come near $28.5 trillion.
Economists say this event would lead to a disastrous effects on the US economy as it could lead to a spike in interest rates. Harvard University economics professor Karen Dynan said the government needs funding for paying interest on its debt.
And if it stops paying interest then it would unsettle the financial markets. Moreover, he said the governments require these funds for paying government workers and sending out Social Security checks.
Since people depend on that money, they could suffer many hardships if not granted their share as per the schedule. Politicians haven’t refrain from using the debt ceiling for their political benefits even during the economic calamity.
Republicans often used it for winning spending reductions from the White House in exchange for voting for raising the debt limit. Since Democrats have a marginal control over both houses, they would form a consensus view on this subject.
Uncertainity Over How Long would these Extraordinary Measures Last
US Treasury Secretary Janet Yellen has said that it is difficult to say how long would the extraordinary measures last. He said so by keeping in mind many uncertain factors.
These factors include the challenges of forecasting the payments of the US government months into the future. Moreover, another factor namely, the uncertaining in payments due to the economic impact of the pandemic will also play a crucial role.
