The House of Representatives approved this Tuesday, thanks to the Democratic majority, a bill to extend the debt limit and prevent the federal government from having to close, a decision that would have catastrophic consequences for the pocket of all citizens.
But now it must be validated by the Senate, where Democrats need conservative support and do not have it: "Republicans are united in opposing raising the debt ceiling," said Upper House Minority Leader Mitch McConnell .
[Wall Street registers its worst loss since May: there is fear of instability in China and what the Federal Reserve announces]
Congress has until September 30 to prevent the country from not meeting its public debt commitments, a situation that frightens politicians, economists and investors.
The Secretary of the Treasury, Janet Yellen, warned in an article published in The Wall Street Journal that, if a pact is not reached, the federal government will run out of funds in October.
The United States has never in its history defaulted.
But what would be the consequences for citizens?
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April 28, 202102: 17
What is the debt limit?
The debt limit is the total amount of money the Government is authorized to borrow to meet its existing financial obligations, including Social Security and Medicare benefits, military salaries, tax refunds, and other payments, from agreement with the Treasury.
When Congress increases or suspends the debt limit, it is not giving the green light to new spending, but rather it is allowing the Treasury to pay the expenses it has already approved.
What if Congress doesn't raise the debt ceiling?
If Congress does not raise the debt ceiling, the federal government would be forced to default on its financial obligations simply because it could not keep the promised payments for federal programs without borrowing more money.
The Treasury can meet the government's obligations over a period of time through tax revenues, cash reserves and "extraordinary measures" that the law authorized, such as delaying the payment of the retirement of federal employees.
[Biden says his tax plan will benefit the middle class and make the rich pay more taxes]
But at some point it would run out of funds and stop paying federal employees, military supplies, Social Security benefits, reimbursements for doctors treating Medicaid and Medicare patients, or interest payments on Treasury bills.
While Biden insists the country is on the right track, many economists are concerned
Sept.
3, 202101: 26
That would lead to a catastrophic financial crisis and threaten the jobs and savings of citizens in the United States, putting the country in great economic difficulty just as it is recovering from the recent recession.
What happens if the United States goes into
default
and cannot make its payments within the established period?
This scenario "would likely precipitate a historic financial crisis that would exacerbate the damage from the continuing public health emergency" caused by the COVID-19 pandemic, Yellen wrote in The Wall Street Journal.
"The
default
could trigger a rise in interest rates, a sharp fall in equity prices and other financial turmoil. Our current economic recovery would reverse and turn into a recession, with billions of dollars of growth and millions of of lost jobs, "he warned.
The rating agency Moody's said in a report on Tuesday that the recession resulting from a default would destroy some six million jobs and the unemployment rate would rise to 9%
The price of the shares would plunge by a third and some 15 trillion dollars in savings and investments would be lost to citizens by the collapse of the market.