Following the breach of the debt ceiling, the Treasury Department began taking “extraordinary measures” on Thursday.
Lawmakers continue to argue about raising the federal borrowing limit, also known as the debt ceiling, which allows the United States government to meet its financial obligations. The government’s borrowing limit is currently set at $31.4 trillion.
In a letter to lawmakers, Treasury Secretary Janet Yellen stated that “the period of time that extraordinary measures may last is subject to considerable uncertainty.” At that point, the Treasury will have to pay its bills late, and the United States may default on its debt, which has never happened before.
So far, the Treasury Department has taken extraordinary measures such as suspending new investments and liquidating prior investments in the Civil Service Retirement and Disability Fund and the Postal Service Retiree Health Benefits Fund.
Furthermore, Yellen stated in a letter last week that it could be the final blow that sends the fragile economy into a recession.
Inaction on raising the debt ceiling for an extended period of time would jeopardise several government programmes.
What’s at stake is as follows:
Will the debt ceiling have an impact on Social Security?
Whether or not the debt limit is raised on time, Social Security may be affected. This is because some Republican lawmakers have indicated they will not raise the debt ceiling unless it is accompanied by a reduction in Social Security funding, among other spending cuts.
Not all Republican lawmakers support Social Security cuts, and Democrats have indicated they will not compromise on the issue.
However, if the government defaults on its debt, the $90 billion monthly Social Security payments made to 65 million recipients could be interrupted, according to the National Committee to Preserve Social Security and Medicare.
“Without the authority to cash in… securities,” the Committee said in an online post, referring to Treasury securities such as bonds in which the Social Security trust fund invests. “It is more likely than in the past that Social Security beneficiaries will bear the full brunt of a default,” according to the post.
The Committee also stated that if an agreement is not reached, Medicare and Medicaid payments may be delayed. Because medical centres would not receive timely reimbursements, this could have an impact on the care provided to Medicare and Medicaid policyholders.
Refunds of taxes
On January 23, the Internal Revenue Service will begin accepting and processing tax returns. The IRS stated that people who file their returns electronically should receive a refund within 21 days if they are eligible.
However, Yellen hinted in her letter that if the debt ceiling is not raised, it could take much longer.
401(k) Effect
If the debt ceiling is reached without a timely resolution, financial markets may become unstable.
After the limit was breached, markets remained relatively calm on Thursday.
According to Michael Sheldon, chief investment officer and executive director at investment advisor RDM Financial Group at Hightower, long-term investors should stay the course and not let short-term events dictate their investment decisions.
“As with many of these crises in Washington in recent years, cooler heads will likely prevail at the last minute,” Sheldon predicted. “For long-term investors putting money aside for retirement, this will most likely be short-lived, so you should continue to focus on your long-term investment objectives.”
