Creditworthiness of US at stake; Will cash-strapped US raise debt ceiling?
The creditworthiness of the world's largest economy seems to be drenched as US treasury has stopped issuing further debt citing reasons for reaching the borrowing ceiling.
The US Treasury Secretary Jack Lew on Wednesday sent a letter to Congress alerting it that the US economy is poised to face cash crunch. Lew has also warned the US government to either raise the debt ceiling or face the risk of default.
"We believe that the measures will not be exhausted before late October and it's lilkely that they will last for at least a brief additional period of time," Jack Lew stated in the letter.
Lew suggested an increase in the cap on debt ceilingand at the same time, he clarified that there's no room for additional spending. However, the government can take up measures to honor its obligations. Hence, the US government can fulfill the commitments Congress has already approved.
The debt ceiling was recently raised to $17.2trillion in February 2014 and subsequently in March, the cap on borrowings was reset at $18.113 trillion. From March 16 onwards, the US will have borrowed as much it's allowed, But the Treasury is not able to make all the payments it owes.
The US Treasury Secretary's warning letter was likely to trigger a long-running political was between Republicans and Democrats.
The soaring debt is putting pressure on Treasury Department and forcing it to borrow to pay the country's bills. On the positive side, the revenues have been increasing and this is reducing the burden on Treasury department.
Congress has elected to suspend or raise the debt limit about seven times since 2010. This too was done in the last minute with a great difficulty in dealing the opposition.
Earlier this year, Lew reminded lawmakers of raising debt ceiling. "Absent an increase in the debt limit, the Treasury Department will have to take extraordinary measures to continue to finance the government on a temporary basis," he said in his previous letter.
The debt ceiling is the amount that the US government is allowed to borrow to pay its bills. This debt ceiling was set up in 1939 and it was voted to raise the limit for more than 100 times.
The debt ceiling is the amount that the US government is allowed to borrow to pay its bills.
This debt ceiling was set up in 1939 and it was voted to raise the limit for more than 100 times.
If the government wouldn't opt for increasing the debt ceiling it would attract the risk of default. This will further impact the country's credit rating. Standard&Poor's downgraded the US credit rating for the first time after the 2011 turmoil.