The US government which is currently facing a deep financial crisis is likely to find it difficult to meet its various obligations after February 14, according to a report released by a Washington based think tank.
The Bipartisan Policy Group or BPC has mentioned that the US government has already reached its borrowing limit on the New Year’s Eve and is currently funding its operations through extraordinary measures. The US treasury has been tapping the $200 billion emergency fund to ensure uninterrupted operations of departments or schemes fully funded by it.
The report prepared by Steve Bell, Loren Adler, Shai Akabas and Brian Collins, these extraordinary measures are also not going to help the US government for very long. The government is likely to reach its borrowing limit by February 14, the report says. As part of the extraordinary measures, the US treasury is expected to reduced the fund held in the federal employees retirement fund called the G-fund. This will allow the US to free up some debt and issue fresh securities to public to raise funds. But once the government’s debt limit increases, it needs to put back the funds used from the federal employee retirement fund. The government had used similar measures in 2011 and had managed to extend its debt limit from May 15 to August 2. But the measures are not likely to delay the process for such a long time this year, the analysts warn.
The BPC also warns that once the full emergency borrowing authority has been utilized, the US treasury can either use the cash in hand or the daily tax revenues for funding its operations. In case the debt limit is reached and the Congress fails to take any action, the US government is likely to default on its obligations between February 15 and March 1.
The government is likely to have tax revenues worth 9 billion against the obligation of $52 billion for interest payments on Treasury, IRS refunds, salaries and benefits of federal employees, military active duty pay, Medicare, low income housing and food stamps, defense contractors and unemployment premiums etc. The US government will find it extremely difficult to fund its operations past the X date.
The US government has already said that it is not in favor of privatizing assets during the time of crisis. It has also rejected several other ideas like the trillion dollar coin as impractical or inappropriate. Even the Federal Chairman Ben Bernanke has warned that in case the Congress does not cut its spending and the government reaches its borrowing limit, rash decisions about what obligations to meet and what to delay may be taken. This in turn will have an adverse impact on any kind of recovery, Bernanke has said.
According to the BPC numbers, the US government is unlikely to default on its interest payments to investors. But the payment to federal workers and federal programs may get impacted which in turn will have a negative impact on the overall economic scenario. The only solution appears to be that the government increases its tax revenues via increased base and the Congress rethinks upon its borrowing program.
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