Congress and the White House are locked in a deadlock on the debt ceiling, and if they don’t reach an agreement, experts warn of economic consequences. DISHONOR.
In a SPEECH At the Independent Community Bankers of America 2023 Capital Summit Tuesday, Treasury Secretary Janet Yellen said failure to raise the debt ceiling would lead to “widespread suffering” for average Americans, a crashing stock market , and direct “economic and financial disaster.”
The federal government has hit the $31.4 trillion debt limit JANUARY, and Yellen has been forced to use “extraordinary measures” to keep the government running since then. But the Treasury Secretary also confirmed on Tuesday that the X-date, when the US can no longer pay its bills even with extraordinary measures, could come on June 1.
Now, even Wall Street is starting to pick up nervous. The price of insuring against US government debt default, measured by the spread of one-year US credit default swaps, hit a record high last week.
And Jason Furman, who served as chairman of the council under President Obama, noted that even though Congress was able to raise the debt limit at the time (that is 79th time has done so since 1917), the negative effects of political gridlock in Washington are still being felt.
“Even brinkmanship itself has a cost. It’s completely unnecessary,” Furman, now a professor at the Harvard Kennedy School, SPOKE CNBC Tuesday.
Treasury Secretary Yellen explained in a LETTERS to Congress Monday that waiting until the last minute to raise the debt ceiling would damage consumer confidence, raise short-term borrowing costs for taxpayers, or even lower the US government’s credit rating.
And Furman has said for years that the debt limit should be completely eliminated, claiming a 2017 Wall Street Journal op-ed which no longer helps control the national debt as intended.
“Whatever the remaining amount of the debt limit may be is greatly outweighed by the risk that a potential US default would have on the global economic order,” he wrote.
On Tuesday, he reiterated that view, speaking CNBC that using the debt ceiling as a way to moderate federal spending is not very logical and he “would like to see the debt limit eliminated” before this latest political gridlock.
“I think it’s a very expensive way to do that. Brinkmanship always costs us and there are other mechanisms [to get around the debt ceiling],” he said.
Some experts argue that Congress can create a trillion dollar coin to avoid the debt ceiling, while others say that it can be eliminated based on an interpretation of the 14.th The amendment, which was passed by the Senate in 1866 and destroyed the concept of a debt ceiling completely, according to some experts. The amendment reads: “The validity of the public debt of the United States, authorized by law, including debts incurred for the payment of pensions and gratuities for services in the suppression of insurrection or rebellion, shall not be questioned. .”
Glenn Hubbard, former chairman of the Council of Economic Advisers under president George W. Bush and professor at Columbia Business School, also argued that Congress should find a better solution than the current debt limit on Tuesday.
“What we really need is a pivot to a budget framework that, if followed, will have a clean increase in the debt ceiling. This periodic theater, as Jason suggests, is not very productive,” he SPOKE CNBC.