Treasury Secretary says debt ceiling must be raised to avoid economic disaster

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Some federal beneficiaries could see their benefits impacted

U.S. Treasury Secretary Janet Yellen is calling on Congress to take action to address the nation’s debt ceiling before financial disaster impacts the U.S. economy.

Yellen sent a letter to congressional leaders regarding the debt limit on Tuesday. In the letter, she said things could fall apart fast if Congress does not raise or suspend the current debt limit by October 18. If lawmakers don’t act, Yellen says it would hamper the federal government’s ability to spend money and function properly.

“At that point, we expect Treasury would be left with very limited resources that would be depleted quickly,” Yellen wrote. “It is uncertain whether we could continue to meet all the nation’s commitments after that date.”

What this could mean

In her latest warning, Yellen said that the federal government’s cash flows could go helter-skelter if Congress doesn’t act in time. One example she gave referenced the government’s daily gross cash flow, which has averaged nearly $50 billion per day and has exceeded $300 billion over the past year. 

“As a result, it is important to remember that estimates regarding how long our remaining extraordinary measures and cash may last can unpredictably shift forward or backward.  This uncertainty underscores the critical importance of not waiting to raise or suspend the debt limit.  The full faith and credit of the United States should not be put at risk,” Yellen wrote.

At the consumer level, the uncertainty of managing the U.S.’ cash flow effectively could cause the economy to spiral out of control. 

“We know from previous debt limit impasses that waiting until the last minute can cause serious harm to business and consumer confidence, raise borrowing costs for taxpayers, and negatively impact the credit rating of the United States for years to come,” Yellen warned. “Failure to act promptly could also result in substantial disruptions to financial markets, as heightened uncertainty can exacerbate volatility and erode investor confidence.”

Concerning news for some federal benefits recipients

Failing to raise or suspend the debt ceiling could mean bad news for federal benefits recipients in the short term. Yellen noted that it could limit the government from being able to pay beneficiaries who rely on the Civil Service Retirement and Disability Fund (CSRDF). She added that a debt issuance suspension period, previously determined to end on September 30, 2021, will continue through October 18, 2021.

Yellen also said consumers who rely on the Postal Service Retiree Health Benefits Fund (PSRHBF) may also be affected. 

“Because the Postal Accountability and Enhancement Act of 2006 provides that investments in [PSRHBF] shall be made in the same manner as investments for the CSRDF, the Treasury Department will also continue to suspend additional investments of amounts credited to, and will redeem an additional portion of the investments held by, the PSRHBF,” she said.

Despite that threat, there is good news for beneficiaries who might be affected by the debt ceiling issue. By law, both the CSRDF and PSRHBF have to be made whole once the debt limit is increased or suspended.

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