Fed urges Congress to raise debt ceiling
Republicans still refuse to raise the US debt ceiling, risking pushing the US, but not just into a serious financial crisis.
“It is of crucial importance,” thundered Jerome Powell, Wednesday, September 22, 2021.
AFP
The President of the US Central Bank on Wednesday issued a strong warning to Congress that Republicans refuse to raise the debt ceiling at the risk of throwing the United States into a serious financial crisis with global ramifications.
Jerome Powell has joined a cohort of current and former officials who warn of the dire economic consequences in the event of default by the world’s largest economic power. It is “very important” to raise the debt ceiling “as soon as possible so that the United States can pay its bills,” said the boss of the powerful Federal Reserve (Fed) as the Treasury believes that the ceiling will be reached by the end of October.
The debt ceiling is the amount of debt from which the country can no longer issue new loans to finance itself, which prevents it from honoring its payments. “It is of crucial importance,” thundered Jerome Powell. “Failure to do so could lead to serious reactions, serious damage to the economy, to the financial markets and it is just not something that we can, that we should be considering,” he said. keep.
Republican opposition
Democrats in the House of Representatives voted on Tuesday evening a text that includes the suspension of the debt limit until December 2022. But this text is doomed to failure in the Senate because of the Republican opposition.
Failure to pay would trigger a global financial cataclysm. And the mere image of deadlocked parliamentarians could affect markets and increase the cost of borrowing for the United States. While all in Congress agree on this grim scenario, the two parties are fiercely opposed on how to avoid it.
Democrats are urging Republicans to approve the debt suspension, as they have done together on numerous occasions in the past. The Republicans hammer home that there is no question of supporting such a measure intended, according to them, to finance the gigantic investment projects wanted by Joe Biden.
“This time it’s different”
“This time it’s different because the Democrats are making all of this spending. They are proposing thousands and trillions of dollars in spending without a single Republican voice, ”stormed Senator John Barrasso. He was referring to the possibility of resorting to a legislative procedure to pass laws with only Democratic votes.
But the Democrats are themselves divided on the major investment plans that would incur a total of 3,500 billion dollars (3,250 billion francs) in spending. For the moment, the Treasury has tried to save time by cutting back on spending. Faced with a deadline now on the horizon and inflexible Republicans, six former Treasury secretaries, five Democrats and one Republican, have in turn alerted to the economic consequences in a letter addressed to Congress officials.
“Even a short-lived default could threaten economic growth,” they write. “It would be very damaging to undermine confidence in the strength and credit of the United States, and this damage would be difficult to repair,” they opine. The two parties continued to stick to their position on Wednesday.
“Don’t play Russian roulette”
Thus the leader of the Republicans in the Senate, Mitch McConnell, who had pleaded in favor of an increase in the ceiling under former President Donald Trump, asked the Democrats to endorse this decision alone. “My advice to the Democratic government, the President, the House and the Senate: do not play Russian roulette with our economy,” he said at a press conference. “Take responsibility and raise the debt ceiling to cover everything you’ve been doing, throughout this year.”
Bernie Sanders, an independent elected official and a major progressive figure, deplored the attitude of the Republicans. “I couldn’t understand, and I don’t think Americans either, that the Republican Party is allowing the world’s largest economy to default on loans and money already spent, especially spent on money. the Trump administration. “
This would “bring the world economy to its knees,” he insisted. For these reasons, he believes the Republicans will eventually falter. Jerome Powell concluded: “No one should assume that the Fed or anyone else can protect the markets or the economy in the event of default.”
