The Secretary of the Treasury fears that the United States is insolvent

The US government currently has until July 31 to repay some of the $28 trillion in government debt to fit the so-called repayment ceiling set by law. And if this fails, Janet Yellen warned, the Treasury may use various instruments to finance government debt, which consists primarily of government bonds, and then become insolvent.

According to the finance minister, the rates and timing of government payments have become uncertain in the wake of the pandemic, making it difficult to say exactly when the government will become insolvent. On the other hand, Yellen is of the opinion that they will likely reach that point in mid-August, just as Congress takes summer recess.

Failure to raise the ceiling would have absolutely dire economic consequences عواقب

Yellen said, adding that the US government has never become insolvent in history.

The US government, like most countries in the world, finances its budget with a near-permanent deficit by issuing bonds. However, due to his peculiar judgment in religion, he encounters obstacles from time to time. As a solution to the situation, the ceiling should be raised or the deadline extended as a temporary solution.

This is because the law stipulates the maximum nominal value of the public debt (in dollars), above which no new debt can be borne. However, the debt ceiling is a rather inflexible tool, even in a wise but growing country, the nominal debt may rise, which means that the debt ceiling cannot be a significant disincentive to debt, as it is exceeded by governments on any case. This is why Congress can lift or rescind this order at any time in order to preserve its enforceability, ensuring that the government is never forced into a situation similar to an insolvency, or even an insolvency situation.

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In such cases, serious political bargaining begins, so that the government eventually avoids bankruptcy of the state through bipartisan agreement. The debt ceiling was last suspended in 2019 and the deadline for that suspension is now July 31. And before that, there was a serious political battle in 2011 in conditions like the current one – then Standard & Poor’s downgraded its US debt in an unprecedented way.

Cover photo: Shawn Thew-Pool / Getty Images

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