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25.07.202104:34 Forex Analysis & Reviews: Janet Yellen warned the US government about the threat of a technical default

Exchange Rates 25.07.2021 analysis

US Treasury Secretary Janet Yellen sent an official letter to the relevant legislative body, in which she said that the country might face a technical default. Recall that a few weeks ago, Yellen already spoke about the threat of a technical default. Now, this issue is coming to the first position in the rating of the most priority tasks of the American government. Yellen informed the country's leadership that a default could cause irreparable damage to the state. It would seriously affect the pace of economic recovery after the crisis caused by the coronavirus pandemic. A default could happen as early as August if the government debt ceiling is not raised by July 31. If nothing is done in this matter, the state debt limit will be exhausted on August 1. Thus, if the national debt is not increased, the American government will not be able to pay debts and interest on government bonds, which will seriously undermine confidence in the authorities and spoil the international reputation of the United States. The US Treasury Secretary also noted that even "one threat of default" is already harming the economy. Yellen also notified the government that, starting in August, her department is suspending the sale of securities.

In 1917, a law was passed in the United States that restricts government spending and the amount of debt. Thus, to increase the size of the national debt, Congress and the Senate must approve this decision. Since 1917, Congressmen have increased the borrowing limit 74 times. It is also worth noting that the total US public debt during the pandemic increased to $ 30 trillion, which is more than 100% of the country's GDP. However, most experts still tend to believe that the issue will be resolved positively. One of the US political forces is not profitable to default, no matter how banal it may sound. And in any case, the States are used to "living on credit." If the national debt limit has already been raised 74 times, nothing prevents it from being raised 75 times. Thus, the probability of a "surprise" is minimal.

*El análisis de mercado publicado aquí tiene la finalidad de incrementar su conocimiento, más no darle instrucciones para realizar una operación.

Paolo Greco,
Experto analítico de InstaForex
© 2007-2021
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