US Treasury hopeful of solution to debt ceiling

Britain says showdown over US debt posed very serious threat to global economy

NIIGATA, JAPAN:

US Treasury Secretary Janet Yellen on Saturday called a showdown over raising the US debt ceiling “more difficult” than in the past but said she remained hopeful a solution could be found to avert a first-ever US default.

Yellen told Reuters in an interview on the sidelines of a meeting of Group of Seven finance officials in Japan that she hoped to update the US Congress within the next couple of weeks about when exactly the Treasury would run out of funds to pay the government’s bills.

The US Treasury chief has called repeatedly for Congress to agree to raise the $31.4 trillion cap on federal borrowing to avert the “economic and financial catastrophe” that would ensue if the United States defaulted on its debts.

British Finance Minister Jeremy Hunt told reporters the standoff posed a “very serious” threat to the global economy.

“It would be absolutely devastating if America... was to have its GDP knocked off track by not reaching agreement,” Hunt said on the sidelines of the G7 meetings.

Yellen said her estimate last week that the Treasury may not be able to meet payment obligations as early as June 1 was consistent with Friday’s report from the Congressional Budget Office warning of a “significant risk” of default in the first two weeks of June.

President Joe Biden, a Democrat, insists Congress has a constitutional duty to raise the limit without conditions to fund previously approved spending.

Republicans, who control the House of Representatives, want Biden to agree to sweeping budget cuts to secure their agreement.

Unlike most developed countries, the US sets a ceiling on how much it can borrow. Because the government spends more than it takes in, lawmakers must periodically raise that cap.

“It’s certainly not a positive for relationships and standing in the world and credibility. Maybe this time is more difficult, but I’m hopeful that...we will find a solution.” She said it was a positive sign that “pretty much everyone” at a meeting Biden hosted with congressional leaders on Tuesday agreed it would be unacceptable for the US to default.

Despite the debt ceiling fight, Yellen said she remained convinced that the Biden administration had re-established US leadership in the world and other G7 leaders were grateful they had turned “the dial 180 degrees relative to the Trump administration”.

Published in The Express Tribune, May 14^th, 2023.

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