The Treasury Division just isn’t set as much as pay a few of its payments and never others. However it might be pressured into that state of affairs, if Congress would not increase the debt ceiling quickly.
MICHEL MARTIN, HOST:
What occurs if the federal government runs out of cash to pay its payments?
STEVE INSKEEP, HOST:
President Biden and Home Speaker Kevin McCarthy retains saying to not fear about that. They met yesterday to barter over elevating the federal debt restrict. Congress wants to try this in an effort to meet its authorized obligations. Biden spoke earlier than yesterday’s assembly.
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PRESIDENT JOE BIDEN: We nonetheless have some disagreements. However I believe we might be able to get the place we now have to go. We each know we now have a big duty.
INSKEEP: McCarthy stated after the assembly, I imagine we are able to get it performed. However hardly greater than per week stays earlier than June 1. The Treasury Division says that is the earliest date at which the U.S. could have much less cash than it wants.
MARTIN: NPR’s Scott Horsley has been asking what that may appear to be. Good morning, Scott.
SCOTT HORSLEY, BYLINE: Good morning.
MARTIN: So let me begin with Republican Congresswoman Nancy Mace of South Carolina. She was on MORNING EDITION not way back. She instructed the U.S. will pay its present money owed. Let’s hearken to what she stated.
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NANCY MACE: We will prioritize. The president can prioritize spending. We’re not going to expire of cash to pay the curiosity on the debt as a result of we get 11 instances the curiosity on the debt in tax revenues 12 months over 12 months.
MARTIN: So let me briefly truth test that. Is she proper?
HORSLEY: If all you are involved about is making curiosity funds on the federal government’s debt, she is correct. The federal government nearly definitely will maintain making these funds. And curiosity is not due till the center of June anyway. However the authorities has tens of billions of {dollars} in different payments that it is imagined to pay earlier than that. And Treasury Secretary Janet Yellen says it’s totally doubtless the federal government is not going to have the funds for to cowl all these payments except Congress raises the debt restrict quickly. Bear in mind, tax income covers solely about 75 cents of each greenback the federal government spends. The remainder must be borrowed. And if the federal government cannot borrow extra money, some payments are going to go unpaid.
MARTIN: Which is like the best way numerous households reside, proper? I imply, if you do not have sufficient cash to pay all of your payments, you prioritize some over the others. So how is the federal government going to determine who will get paid and who would not?
HORSLEY: Yeah, the federal government has a really robust name. Who do you stiff, retirees on Social Safety, members of the army, docs who take care of Medicare sufferers, taxpayers who’re ready for his or her refunds? Bondholders are paid by a separate laptop system, to allow them to simply be given precedence. However Yellen instructed a Senate committee this spring, making an attempt to pay a number of the authorities’s payments and never others is each dangerous and untested.
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JANET YELLEN: The federal government, on common, makes hundreds of thousands of funds every day. And our techniques are constructed to pay all of our payments on time and to not decide and select which payments to pay.
HORSLEY: That stated, the Treasury Division may be pressured into that place in nearly 9 days. Yellen instructed NBC over the weekend if the debt ceiling just isn’t raised, there will likely be laborious decisions to make about which payments go unpaid. Now, the federal government has not stated quite a bit about how it will go about that. It could be messy. There could possibly be authorized challenges. One choice can be to maintain paying payments so as as tax cash turns into obtainable. So maybe somebody who’s anticipating a Social Safety fee on June 2 as an alternative will get paid on June 3 or June 5. The longer the deadlock drags on, the extra these unpaid payments pile up and the later the funds may get.
MARTIN: How a lot lasting harm would that do?
HORSLEY: Nicely, when a person is late paying payments, his credit standing takes successful. And that makes it dearer to borrow cash sooner or later. The identical factor might occur to the federal authorities. Now, if bondholders maintain getting paid, this may not rely as a technical default. However Yellen has stated failure to pay any of the federal government’s payments can be a default by one other title. And, you realize, it will doubtless rattle the monetary markets. Bondholders may moderately marvel, how lengthy are they going to maintain getting paid whereas grandmothers and repair members have their checks held up? That is not an excellent look politically.
MARTIN: That definitely is not. That’s NPR’s Scott Horsley. Scott, thanks a lot.
HORSLEY: You are welcome.
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