Joe Biden’s administration has only a month to prevent the US from debt default. This can impact millions of Americans. It can also unleash economic and fiscal chaos throughout the world.
Janet Yellen, the Treasury Secretary, warned that the government may fail to pay all its bills in full and on time as of June 1.
But, the economic forecast was uncertain, and the default date could come weeks later. The USA hit its dollar 31.4 trillion debt ceiling in January, and the Treasury was using cash and some extraordinary measures to satisfy obligations.
What can happen in the country in case of debt default is still unknown.
Yellen pointed out that if Congress does not succeed in increasing the debt limit, it would cause major hardship to American families. It will hamper the worldwide leadership position and raise questions about their ability to defend their country’s security interests.
Joe Biden now met with top congressional leaders. This was to discuss debt ceiling brinkmanship. Till now, the country has never defaulted on its obligations. As a result, it is doubtful how badly it will affect the U.S.A.’s economy. The federal salaries, Social Security, and Medicare are at risk if the U.S.A. defaults.
The Treasury Department makes several payments in a day. That will be in trouble if the government runs out of money.
The director of economic policy at the Bipartisan Policy Center, Shai Akabas, said it is difficult for the Treasury to pick and choose which payments to make because so many families rely on the government’s various payments.
A debt default will not mean that all payments stop and customers lose out on the money they owe. Treasury will have the funds to satisfy some obligations. But, it is not certain how the agency will tackle the disbursements. Much can depend on how long Congress will take to address the borrowing cap.
The director of economic policy at the Bipartisan Policy Center, Shai Akabas, said that tens of millions of people throughout the country who anticipate payments from the federal government have chances that they may not get them on the proper time.
About 66 million disabled workers, retired people, and others receive per month Social Security benefits. The average payment for retired workers is $ 1,827 per month in 2023.
These payments can be delayed in a debt default circumstance. It is possible that the Treasury can continue to make on-time payments. This is because of the trust fund of the entitlement program.
This can affect several other government payments. This can include funding for federal grants to the states and also municipalities for Medicaid. This also includes highways, education, and other programs as well. It also includes Medicare payments to doctors, hospitals, and health insurance plans.
Federal government contractors can see a delay in payments, which can affect their capabilities to compensate their workers.
Some veterans’ benefits which include disability payments and also the pensions for some low-income veterans and families, can be affected.
About $ 25 billion in pay or benefits for active-duty members of the military, civil service, military veterans, military retirees, and recipients of Supplemental Security Income is usually sent out on the 1st day of the month, according to the CBO.
Americans’ investments will get a direct hit. Stocks can shed a 3rd of their value. That shall wipe out about $ 12 trillion in household wealth. This is according to Moody’s Analytics.
Now, if the lawmakers fail to come to an agreement before the government runs out of cash for paying its debts, the interest rates can surge, as experts say. Those interest rates usually extend to mortgage rates, credit cards, and other borrowing prices, like personal or auto loans. USA’s default can also extend to retirement savings, including 401(k) plans and pensions.
The interest rates on credit cards, loans, and mortgages are based on Treasury yields. The price of borrowing money and paying off the debt will increase. That is on top of the increased prices that Americans are facing from the Fed rate hikes.
Businesses and Families will also have a tough time getting credit because banks will be more selective about whom they are lending. That is because their borrowing prices will also increase, limiting the amount of money they can lend out.