US TREASURY Secretary Janet Yellen on Wednesday warned congressional leaders that the Treasury will run out of cash next month and the federal government will be forced to default on the federal debt unless Congress agrees to allow it to borrow even more.
Yellen issued the stark warning that the money would run out and the ‘most likely outcome’ was that its coffers would be ‘exhausted’ during October.
She added that: ‘A delay that calls into question the federal government’s ability to meet all its obligations would likely cause irreparable damage to the US economy and global financial markets.’
The US current debt limit stands at $22 trillion. This limit was suspended for two years in July 2019 and now stands at $28 trillion.
Yellen is now pleading with the US Congress to increase the ceiling above this huge amount which far exceeds the US national debt run up bailing out capitalism after the Great Recession of the 1930s and that incurred after the Second World War.
It stands miles above any previous peace-time deficit at about 100% of the US Gross Domestic Product (GDP) – the total wealth produced by the country – with financial experts predicting that at this rate it will grow to 200% of GDP in the coming years.
In a comment aimed at putting the frighteners on both Democrats and Republicans in Congress to agree a massive increase in debt, Yellen wrote: ‘At a time when American families, communities and businesses are still suffering from the effects of the on-going global pandemic, it would be particularly irresponsible to put the full faith and credit of the United States at risk.’
Yellen’s nightmare is that, if the debt mountain is not increasingly piled up, then it forces the federal government to make savage cuts to its budgets driving working class families even deeper into poverty, sparking an uprising by workers and youth.
Alongside this is the fear that it will destroy the world capitalist financial system.
All capitalist governments fund spending mainly through taxation. When, as today, taxation becomes completely inadequate to cover expenditure, then they rely on printing money to be handed out to the banks in order to allow them to buy government bonds.
This is a safe investment for the speculators as they never envisage a time when the mighty US economy would default and go bust.
Now that Yellen has raised that going bust and defaulting is on the cards, these fund holders and hedge funds will run a mile, dumping their government bonds in a ‘fire sale’ that will collapse the capitalist world financial system overnight as Yellen knows.
US president Joe Biden was narrowly elected pledging to save the US economy. Congress is considering his economic ‘recovery’ plan including the $3.5 trillion social net expansion plan which the Democrats hope will go some way to holding back the growing anger of the US working class over mass unemployment and poverty wages.
The Republicans are completely opposed to this package and are refusing to increase the debt ceiling unless spending cuts and debt reduction are included in any package.
The scene is set for Biden to renege on all his pledges to provide any relief for workers in the face of Republicans refusing to raise the debt limit and allowing America to go bankrupt and crashing the entire world capitalist system by defaulting on the US debt. But if Yellen gets her way, the debt mountain will be inflated beyond any possibility of repayment or reduction, once again threatening to collapse capitalism.
Whatever the outcome of Yellen’s desperate pleading, it is clear that a world financial crash of epic proportions is fast approaching.
Capitalism in its final death agony can only stagger on through massive debt and when this debt pile collapses it must make the working class pay through brutal class war to impose the capitalist crisis on their backs.
The powerful working class across the world will not passively accept being driven into poverty and starvation to save bankrupt capitalism.
The only answer to the capitalist crisis for the working class is through putting an end to bankrupt capitalism with the victory of the world socialist revolution.