The battle over the debt ceiling has been kicked up a notch after a warning from Treasury Secretary Janet Yellen saying that extraordinary measures to pay the government's bills
could run out as early as June 1. That contrasts with her update in January that estimated it was unlikely to run out of cash before early June. As part of the extraordinary measures, the Treasury is suspending the issuance of State and Local Government Series Treasury Securities, which will deprive states and municipalities of an important tool to manage their finances.
Quote: "Given the current projections, it is imperative that Congress act as soon as possible to increase or suspend the debt limit in a way that provides longer-term certainty that the government will continue to make its payments," Yellen declared. "We have learned from past debt limit impasses that waiting until the last minute to suspend or increase the debt limit can cause serious harm to business and consumer confidence, raise short-term borrowing costs for taxpayers, and negatively impact the credit rating of the United States." Yields on the short side of the Treasury curve
spiked sharply on the news, with the 1-month Treasury bill (
US1M) jumping 44 basis points overnight to 4.81%.
While raising the debt ceiling has turned into a bitter partisan issue over the years, even
prompting a credit rating downgrade of U.S. government debt in 2011, both parties have always reached a late deal to avoid the country going into default. Last month, House Speaker Kevin McCarthy
introduced a bill that proposed raising the $31.4T debt ceiling by $1.5T - along with limiting federal spending - but tensions are on full display, with Republicans and Democrats remaining far apart. Following the latest news, President Biden invited McCarthy and other congressional leaders to a meeting on May 9, but only a handful of rejections could derail any deal, and concessions may be a lot harder to come by - especially with extreme flanks enveloping both sides of the debt limit debate.
Other ways out? "The Treasury could just ignore Congress and issue notes and bonds with coupons well above current yields," writes SA contributor James Baker, referencing a
novel solution to the debt crisis. Another one that uses an accounting ploy, called the "trillion-dollar coin," has been previously
referred to by Janet Yellen as a "gimmick." Recall, that the first
Wall Street Breakfast of the year flagged America's national debt as something that might become a bigger problem in 2023.
Take a look back at the risks and opportunities. (
39 comments)
No comments:
Post a Comment