WASHINGTON, Jan. 20 (Xinhua) -- The new year has brought old worries to a polarized Washington. The White House and congressional Republicans are drawing battle lines again in the debt ceiling debate.
After the United States hit its debt limit on Thursday, Treasury Secretary Janet Yellen announced "extraordinary measures" to stave off a potential default. At the same time, she said there would be "considerable uncertainty" around those actions should Congress fail to pass legislation to increase the debt ceiling.
DEBT LIMIT REACHED
The debt ceiling, which Congress established a century ago, is the maximum amount the U.S. government can borrow. Currently, the country can borrow up to about 31.4 trillion U.S. dollars.
As of Jan. 10, 2023, U.S. government debt was 30.92 trillion dollars, about 22 percent more than the value of all goods and services that will be produced in the U.S. economy this year. The government owes itself around one-quarter of this money, while the rest is public debt, PBS reported.
In her letter to Congress on Thursday, Yellen urged lawmakers to raise or suspend the cap so that the government could continue meeting its financial obligations.
"The period of time that extraordinary measures may last is subject to considerable uncertainty, including the challenges of forecasting the payments and receipts of the U.S. government months into the future," Yellen said. "I respectfully urge Congress to act promptly to protect the full faith and credit of the United States."
The Treasury this month anticipates suspending new investments in two retiree funds for government workers' pensions and healthcare, as well as reinvestments in the U.S. Government Securities Investment Fund -- part of a savings plan for federal employees. The retirement investments will be restored once the debt ceiling is raised, she said.
"Failure to meet the government's obligations would cause irreparable harm to the U.S. economy, the livelihoods of all Americans, and global financial stability," Yellen warned.
According to the U.S. Government Accountability Office, lawmakers have increased the nation's debt ceiling 22 times since 1997. The last time the debt cap was lifted was in December 2021, when Democratic majorities in both the House and the Senate voted to raise the debt limit by 2.5 trillion dollars.
Though the debt limit has become a time bomb that ticks roughly every two years, the problem now features new complications at a moment of heightened partisanship and divided government.
Last week, Yellen urged Congress to act quickly. However, her warning failed to arouse bipartisan discussion. Instead, Democrats, who lead the Senate and hold the White House, and Republicans, who now control the House by a slim margin, have dug into their rigid positions.
Republicans want to use debt-raising legislation as leverage to demand significant spending cuts at a time of heavy U.S.-government spending and sparked the worst inflation in four decades.
On Tuesday, House Speaker Kevin McCarthy rejected Democratic calls for a clean debt ceiling increase without any conditions attached.
Meanwhile, the White House said it would not negotiate over raising the debt limit. "This should be done without conditions," White House press secretary Karine Jean-Pierre told reporters.
On Tuesday, Arizona Republican Andy Biggs tweeted, "We cannot raise the debt ceiling. Democrats have carelessly spent our taxpayer money and devalued our currency. They've made their bed, so they must lie in it."
The White House seized on Andy Biggs' comments to accuse Republicans of risking a default that would "needlessly plunge the country into economic chaos, collapse, and catastrophe."
As the partisan stand-off sets the stage for a possible fiscal crisis, U.S. National Economic Council Director Brian Deese on Thursday again warned of "economic chaos" that could ensue if Congress fails to raise the debt limit.
"Even just the specter that the United States might not honor its obligations does damage to the economy," he told CNN.
The stalemate raises the prospect of the world's largest economy defaulting on its debts, igniting a firestorm in global markets as a U.S. recession seems like a growing possibility, experts said.
The Treasury Department could drain emergency resources to cover the federal government's financial obligations by the beginning of July, potentially triggering an unprecedented fiscal crisis, said the Wells Fargo Economics Group in a note on Thursday.
Wells Fargo's projections show that "Date X" -- the day when the United States would fail to honor its financial commitments -- may fall between early July and September.
Hitting Date X without lifting the debt ceiling could lead the country to default on its debt for the first time in its history, causing potentially serious consequences. By then, America's credit rating would likely be downgraded, the dollar would be weakened and average Americans could see their retirement savings shrink, experts cautioned, adding that such a default would send ripples across the global financial system.
Similarly, Bank of America noted last week that "failure to raise -- and breaching -- the debt ceiling could bring far more economic pain and is the fiscal policy equivalent of crossing the Rubicon."
Once the clock runs out, the government could miss interest payments or cut spending on key programs. "This would likely trigger a downgrade by credit rating agencies, as was the case in 2011 during the last debt ceiling showdown," it added.