Treasury Secretary Janet Yellen testifies throughout a Senate Banking, Housing and City Affairs Committee listening to on the CARES Act, on the Hart Senate Workplace Constructing in Washington, DC, U.S., September 28, 2021.
Matt McClain | Reuters
Congress faces an Oct. 18 deadline for elevating the U.S. debt ceiling.
If it’s not elevated by that date, the federal government will discover itself in an “inconceivable state of affairs,” Treasury Secretary Janet Yellen stated throughout congressional testimony Thursday.
“The Treasury has been directed by Congress to pay all the authorities’s payments, to make use of the tax revenues which might be obtainable and with out that to situation debt, and the debt ceiling will make it inconceivable for us to do this,” Yellen stated.
That might be catastrophic for American households, she stated.
“Practically 50 million seniors might cease receiving Social Security funds or see them delayed,” Yellen stated.
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The nation’s debt ceiling is just like a person’s bank card restrict. As the cash owed will increase, the federal government should increase the debt restrict, resulting from the truth that extra is spent than the quantity that is available in from taxes.
The problem confronted by the federal government now has been in contrast with 2011, when the debt ceiling wasn’t raised till the final minute.
At the moment, whether or not or not the federal government might proceed to make Social Security funds was additionally referred to as into query.
Simply as they did then, sure Social Security consultants have sought to debunk the concept this system is not going to have the funds obtainable to pay advantages.
Amongst them is Jason Fichtner, vp and chief economist on the Bipartisan Coverage Middle, who has served in a number of senior positions within the Social Security Administration.
The explanation Fichtner and others consider so comes down, partially, to the best way U.S. Treasury bonds used to pay Social Security advantages are dealt with.
Typically, these funds are invested in intergovernmental bonds and exchanged for public debt after which money when the federal government must situation checks to beneficiaries. All of that may occur with out exceeding the debt restrict, Fichtner stated.
There are additionally devoted belief funds that may solely be used to pay for Social Security advantages which might be impartial of the debt ceiling.
“They’ll prioritize Social Security funds,” Fichtner stated. “They’ll do it legally, and they’re going to do it.”
Nevertheless, working up in opposition to the debt ceiling deadline might nonetheless have penalties for Social Security beneficiaries.
“If a debt ceiling and a shutdown have been to occur on the identical time, profit checks would nonetheless exit,” Fichtner stated. “They may be delayed, however new claims couldn’t be processed.”
Notably, the federal government has been anticipating this type of state of affairs, which is obvious in congressional testimony and Federal Reserve conferences, Fichtner stated.
A 2011 Home of Representatives report detailed how the federal government has run so-called “tabletop workouts” as a part of its debt ceiling contingency plans to determine how authorities funds together with Social Security and veteran’s advantages may very well be prioritized.
Nevertheless, sure latest presidential administrations have perpetuated the concept if you don’t improve the debt ceiling, Social Security checks is not going to exit.
In that method, they’re attempting to “weaponize Social Security” and create leverage within the debt ceiling negotiations, Fichtner stated.
“I am not saying you should not increase the debt ceiling,” Fichtner stated. “However let’s be sincere about what occurs.”
Yellen lately expressed help for eradicating the debt ceiling from Congress’ management.