The Joe Biden administration announced that it would take a special measure to avoid default as the U.S. federal government debt reached the limit set by Congress on Thursday (local time). If the Biden administration and the Republican Party, which are at daggers drawn over the increase in the debt ceiling, fail to reach an agreement, there is a prospect that a default will be inevitable in early June.
“Once the limit is reached, Treasury will need to start taking certain extraordinary measures to prevent the United States from defaulting on its obligations,” Treasury Secretary Janet Yellen said in a letter to Congress that day. “I respectfully urge Congress to act promptly to protect the full faith and credit of the United States.”
The extraordinary measure announced by the Treasury Department is a deferral of government contributions to the federal government employee pension plan, which will be in effect until June 5. In this case, certain pension payments are suspended, military and federal salaries are suspended or reduced, and interest payments are deferred. However, if Congress does not increase the debt ceiling, the federal government debt will exceed the limit in June if early, and the default crisis will become a reality.
In the financial market, analysts say that if the U.S. defaults, the unemployment rate will soar, and the number of bankrupts will rise one after another, leading to a 5% drop in the economic growth rate. The Washington Post quoted Moody’s Analytics estimates for 2021 on the same day, saying, “A prolonged impasse over the debt ceiling would cost the U.S. economy up to 6 million jobs, wipe out as much as $15 trillion in household wealth.” It is also highly likely to result in a global economic downturn and chaos in the global financial market.
The Republican Party announced that there would be no agreement to increase the debt ceiling unless the Biden administration cuts social welfare spending. Republican House Ways and Means Committee Chairman Jason Smith said, “The American people rightfully recognize that maintaining Washington’s status quo, which runs up massive deficits and adds trillions to our national debt, is unsustainable. President Biden should be spending this time working with House Republicans to address the debt ceiling in a way that imposes some fiscal sanity. Otherwise, President Biden is simply scheduling America’s next debt crisis.”