According to CCTV News, on September 28 local time, US Secretary of the Treasury Janet Yellen wrote in a letter to the Speaker of the US House of Representatives, Nancy Pelosi, that Congress had less than three weeks to resolve the United States. Debt problem.If the debt problem cannot be resolved before October 18, the United States will suffer a severe economic disaster.
The letter states that the debt problem will seriously damage the confidence of businesses and consumers, increase taxpayers’ borrowing costs, and have a negative impact on the credit rating of the United States in the next few years.Yellen emphasized that if Congress does not act in a timely manner, it may also cause serious chaos in the financial market, aggravate economic volatility and erode investor confidence.
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Yellen will testify in the U.S. Senate on the morning of the 28th local time. She warned in another statement that if Congress fails to approve new funding or appropriations bills, the US government will be closed at the end of September. In this case, government agencies must fire thousands of federal employees and operate with limited capacity until funding is restored.
According to estimates by the US Treasury Department, even if the Biden administration does not pass a new spending plan in 2021, members of Congress still have to raise or suspend the debt ceiling in October.
What needs to be emphasized is that on the evening of September 27, local time, the “bundling” bill proposed by Democrats in the U.S. House of Representatives for provisional government funding and extension of the debt ceiling was vetoed by Republicans in the Senate. The U.S. government shut down and defaulted on debt in October. The risk continues to rise.
The bill will provide the government with funding to maintain operations until December 3, while the suspension of the debt ceiling will take effect until December 16, 2022. The voting result was 48 votes in favor and 50 votes against, failing to reach the threshold of 60 votes. Republican congressmen have already made it clear that they support the approval of government funding, but the debt ceiling should be resolved by the Democrats. Therefore, no Republican congressman voted for it.
Senate Democratic leader Chuck Schumer promised after the vote that he would take “further action” this week to avoid a government shutdown, but he has not yet given a specific plan.
The new fiscal year of the United States is about to start on October 1, and the veto on the 27th means that Congress has only three days left to find a solution, otherwise many federal government agencies will be closed. According to estimates by the Bipartisan Policy Center, a well-known think tank, the closure will cause about three-fifths of the 2.1 million federal government employees to stop working.
Mark Zandi, the chief economist of Moody’s analysis and famous for warning of the risks of financial crisis in 2005, said in an exclusive interview with the reporter of “Daily Business News” that the Democrats will separate the debt ceiling issue and propose a separate government. Appropriations bills, and quickly complete the procedures of both houses of Congress within this week, “for both Democrats and Republicans, it is meaningless to shut down the government economically and politically.”
Image source: Xinhua News Agency
According to Reuters, if the two parties agree, the approval can be completed within a few hours as soon as possible.
In addition to government funding, solving the debt ceiling problem has also entered a countdown stage. The debt ceiling refers to the maximum amount of debt that the U.S. Congress authorizes the government to raise in order to fulfill existing statutory obligations. On August 1 this year, the two-year suspension of the debt ceiling came into effect again, with a ceiling of US$28.5 trillion, and the US federal government’s debt scale has reached this figure. Only by extending or raising the debt ceiling can new funds be raised in the bond market. The U.S. Treasury Department began to take unconventional measures on August 2 to avoid debt default.
According to Zandi’s speculation, around October 20 is the time when the U.S. Treasury Department exhausts its unconventional measures. If the Treasury Department cannot continue to raise debts, the U.S. government may usher in the first debt default in history, which will be against investors all over the world. The confidence of the US government and its bonds has caused a severe blow. Zandi believes that if the US debt defaults, its negative impact will continue for generations.
Zandi told the “Daily Business News” reporter that the most likely option for Democrats is to extend the debt ceiling to the $3.5 trillion social welfare and climate change spending package, and use a “budget settlement in the Senate”. “The special procedure, regardless of the unilateral approval of Republican congressmen, must be completed before or after the 20th.”
However, there are uncertainties in this solution. Moderate Democrats believe that the $3.5 trillion dollar scale is too large and should be reduced, while radical Democrats insist on this figure and said that unless the spending bill is passed, they will not vote for the $1 trillion infrastructure bill. . At present, the infrastructure bill has obtained bipartisan consensus and needs to be approved by the House of Representatives and submitted to Biden for signature.
These two large-scale spending bills are the most important domestic policy goals of the Biden administration. Since the Democratic Party has only a small advantage in the two houses of Congress, it is vital to ensure that the party’s opinions are unified. House Speaker Pelosi has postponed the voting date for the infrastructure bill from September 27 to September 30 in an effort to resolve differences within the party during this period, while the voting time for the 3.5 trillion dollar bill has not yet been determined. Zandi predicts that in order to reach a compromise, the Democratic Party may reduce the scale of most of the expenditure packages, and the final plan may shrink to about 2.5 trillion US dollars.
“The government shutdown will not have an immediate impact on the economy, but the debt default will cause a catastrophic blow to the US economy that has just recovered from the new crown epidemic,” Zandi concluded. He pointed out that the “extreme manipulation” of the two parties on the issue of the debt ceiling is a dangerous game. If the deadlock continues to be delayed, it will eventually cause losses equivalent to the scale of the 2008 financial crisis. “Historically, congressmen have taken it seriously. These harsh warnings and action. I hope they can do it again this time, and move quickly.”
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Cover image source: Xinhua News Agency
