Default
Recently, we had a major scare regarding the debt ceiling. The US was very close to defaulting on its debt due to the debt ceiling, which prevented the Treasury from borrowing money to repay its debtors. Democrats wanted to raise or suspend it, and they ended up going with the former, which Treasury Secretary Janet Yellen said would be sustainable for the Treasury until December 3rd of 2021.
With a couple of weeks left before the date, Yellen sent out a warning to Congress explaining how they needed to raise or suspend the debt limit before a period in December, which wasn’t specified. We don’t know if December 3rd is the exact date, but economists expect it to be around December and January. A new fold comes in with President Biden’s signature of the infrastructure bill, which was given the green light by the House of Representatives a few weeks ago. This bill instructs the Treasury to transfer $118 million to the Highway Trust Fund as part of the deal, which Yellen is confident they can achieve, but after that, there is no way to go. The warning was dire, with Yellen saying that they could no longer finance the government without a change in the ceiling, which sounds like Doomsday. The Treasury could be forced to suspend payments in other government programs like Social Security, which creates new problems. The more obvious effect of this debt ceiling fiasco would be a default-induced recession that would damage the economy and throw the recovery off the rails, which is in no one’s interest. Time will tell if the Democrats and Republicans are able to reach a deal once again. Do you believe they will meet the deadline and escape default?
I am not a financial advisor and my comments should never be taken as financial advice. Investments come with risk, so always do your research and analysis beforehand.
