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The U.S. government will hit the hard limit of its debt ceiling in October. Previously Warned U.S. Treasury Secretary Janet Yellen this week. The national debt has already passed the legal maximum of $28.5 trillion, but a number of accounting tricks allow the U.S. government to buy some more time. If there is no agreement on an increase in the debt ceiling in October, the US government will no longer be able to pay salaries.
The debt ceiling is a recurring phenomenon in the U.S. Usually the ceiling increase is a non-event, but sometimes the opposition uses it to put pressure on the government. This happened, for example, in 2011, when the US Congress only reached an agreement on raising the ceiling at the very last minute. At the time, this caused a lot of turmoil in the financial markets, which was accompanied by a rise in interest rates and the price of gold. Several credit rating agencies downgraded the credit rating of the US, for example, Standard & Poors removed the triple A status of the US for the first time.
At the time of writing, the U.S. national debt is already higher than the official ceiling at $28.7 trillion. This is possible because the government is now temporarily postponing its payments to pension funds for civil servants. According to Secretary Yellen, the debt ceiling can be stretched until October. Nevertheless, an agreement must be reached quickly. Indeed, the Biden administration wants a new stimulus program of $3.5 trillion boot. As a result, the national debt will rise rapidly.
Failure to raise the debt ceiling in time could have far-reaching consequences. Not only will the U.S. government come to a standstill, it will also erode international confidence in the U.S. national debt. U.S. Treasuries are the foundation of the global financial system. Uncertainty about the status of these bonds will cause a lot of stress in the financial markets. We will continue to monitor this development.
Development of US national debt (Source: Trading Economics)
This contribution was made from Geotrendlines
