The debt ceiling of the United States, which was reached on Thursday and which obliges the American Department of Finance to take cost-cutting measures to ensure the payment of its financial commitments, has become the subject of confrontation between the administration Democrat and the new Republican majority in the House of Representatives.
In a letter to Republican Speaker of the House of Representatives Kevin McCarthy on Thursday, Treasury Secretary Janet Yellen announced the implementation of “exceptional measures” while the maximum debt ceiling, currently set at more than $31 trillion, was reached before it was amended by Congress.
The first measures concern the cessation of payments to several pension funds and health or disability benefits for public officials, technical adjustments “which are not immediately necessary for the payment of pensions”.
At the same time, “a period of suspension of debt issuance” has begun and will last until June 5, added Mr.me Yelen.
These measures allow the US administration to see ahead but can only be temporary and, if Congress fails to reach an agreement, the United States could eventually find itself in a situation of default.
“Failure to meet government obligations would cause irreparable damage to the American economy and the livelihoods of all Americans as well as to global finance,” insisted Janet Yellen on January 13.
For the time being, the markets have reacted little to the announcement, the indices – already trending lower at the opening – losing 0.28% for the Dow Jones and 0.39% for the Nasdaq respectively at 7:25 p.m. GMT.
The 10-year Treasury bills, the reference value, stretched a little to 3.39% against 3.36% the day before.
“Everyone expects this to be over by summer but, for now, it’s not really going to move the markets,” said Ed Moya, analyst for Oanda.
liar poker
The White House had underlined Friday that, in normal times, the elected Republicans and Democrats cooperate in the matter “and that is what is necessary”, excluding however any negotiation on this subject.
A way of placing the responsibility for a possible failure on the Republicans, because the latter have made no secret of their desire to use the question of the ceiling as a bargaining chip to obtain blows of plane on the plans of funding voted during the first half of President Joe Biden’s term.
But, even more, they want to impose their own economic program, which provides for new tax cuts and a reduction in public spending. “Imagine giving your child a credit card that regularly hits the cap, so you increase it and so on. At some point do you continue like this or are you trying to change his behavior? “, thus described Mr. McCarthy in front of the press.
“Congress cannot continue to mortgage the future of our children and grandchildren by borrowing from foreign countries like China,” said Republican Jason Smith, chairman of the House Ways and Means Committee.
Senate Majority Leader Chuck Schumer said in a statement that “if Republicans stop paying our nation’s bills, Americans will suffer the consequences.” A political escalation on the level of indebtedness would represent a severe blow to the local economies”.
“Sacrosanct” solvency
JPMorgan Chase chief executive Jamie Dimon told CNBC that “the solvency of the US government should not be an issue. It’s sacrosanct, it must never happen. »
If the increase, or the suspension, of the debt ceiling is a subject that comes up regularly, with already 79 interventions since 1960, it is occasionally a subject of political tension between the two parties.
In 2011, the opposition between the Republican majority in Congress and the Democratic administration of Barack Obama, had been such that the rating agency Standard and Poor’s had lowered the rating of the long-term debt of the United States, a first which shook the financial markets.
In 2021, the very thin Democratic majority in Congress and the Republican opposition scrapped for several months before reaching an agreement.
Janet Yellen had announced at the beginning of August, in an old-fashioned letter ” speaker House Democrat Nancy Pelosi, putting in place “extraordinary measures” to deal with the situation.
Congress had finally agreed on raising the ceiling in December, shortly after midnight on the same day that the Treasury would have been forced to take additional measures, with a more direct impact on the American economy.