According to a report in the media, the Biden administration is reportedly looking at a backup plan developed after the standoff in 2011 on the debt limit. This comes as the United States government is perhaps on the verge of running out of money to pay all of its debts on time.
The Treasury Department has been planning to postpone certain payments beyond June 1, according to a story published by the Wall Street Journal on Thursday, which cited individuals familiar with the situation. This comes as discussions about the debt ceiling continue to drag on.
Janet Yellen, the Secretary of the Treasury, said on Monday that it is “highly likely” that the Treasury would be able to pay all of the government’s debts by the beginning of June, potentially as early as June 1, assuming Congress does not increase or suspend the debt ceiling by that time.
Following the proposal, the Treasury would receive payment requests from federal agencies by the day before the payments are due. On the other hand, under the existing system, payment files may be handed in a significant amount of time before the dates on which they are due.
According to the statements made to the WSJ by the persons involved, if the Treasury needs the cash to fulfill a full day’s worth of payments, it will most likely postpone paying them until it does.
The proposal discussed with government entities needs to indicate whether or not certain invoices would be prioritized for timely payment. However, in the past, certain Federal Reserve and Treasury officials have debated the possibility of giving priority to debt payments. This is because the market for Treasury securities is essential to the functioning of global financial markets.
However, according to Treasury Secretary Janet Yellen, putting some categories of payments higher on the priority list could not be achievable. She said that tough choices will need to be made if the ceiling on the government’s debt is not lifted on time. For instance, paying investors would bring a sense of calm to the world’s financial markets; this may require the government to postpone paying out Social Security benefits.
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