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Tens Of Millions Of Americans Could Lose Benefits ‘Overnight’ If U.S. Defaults This Month, White House Warns

By News Creatives Authors , in Business , at October 6, 2021


With less than two weeks until the Treasury Department expects to hit the congressionally set limit on the nation’s total borrowing, the White House warned on Wednesday that the resulting debt default would quickly—and in some cases, overnight—hinder the government’s ability to pay out federal benefits relied upon by tens of millions of Americans, putting pressure on lawmakers to raise or suspend the debt ceiling as they struggle to reach a compromise. 

Key Facts

If Congress fails to raise or suspend the debt ceiling by October 18 to enable the federal government to borrow more, it would be “immediately impaired” from carrying out its basic functions, including providing financial assistance like Social Security, a team of White House economists led by Cecilia Rouse wrote in a Wednesday note

“It could take decades to recover,” the team said, pointing out that roughly 56 million Social Security recipients may not receive their payments on time, or at all, in the event of a default.

Government healthcare coverage including Medicare, Medicaid and the Children’s Health Insurance Program would also suffer a similar fate, with the economists close to 100 million people could temporarily lose coverage.A default would also threaten veterans’ programs, financial aid, housing assistance and the $300 monthly Child Tax Credit. 

Though the White House didn’t specify exactly how quickly Americans could lose benefits, Treasury officials have warned breaching the debt limit would require prioritizing certain payments before others—an unprecedented task with “no fair or sensible” solution given the volume of payments sent to Americans each month.

After running out of cash, the Treasury would only be able to meet about 60% of its payment obligations given tax revenues in the several weeks that follow, the Bipartisan Policy Center estimates.

Crucial Quote 

“Everyone in America would feel the effects of a default,” the economists wrote on Wednesday. “If the United States were to default, tens of millions—including families with children, retirees and veterans—would quickly, even overnight in some cases, face the prospect of losing the regular Federal payments that help them to make ends meet.”

Key Background

According to the Treasury, Congress has either raised, extended or revised the definition of the debt limit 78 times since 1960, and it has yet to fail to act on the debt limit when necessary. Still, Goldman Sachs warned in a note to clients this week that the uncertainty in Washington “looks riskier than usual,” and is starting to resemble the 2011 crisis that triggered a market correction. If the U.S. defaults, the Treasury would still bring in tax revenue but its biggest source of cash—debt—won’t be accessible, meaning federally funded programs—including disaster relief efforts and infrastructure funding—could also be halted, the White House wrote in a letter last month. “Hitting the debt ceiling could cause a recession,” officials said.

What To Watch For

Despite their impasse, lawmakers have a few options to raise or suspend the debt limit before the looming deadline. Senate Majority Leader Chuck Schumer (D-N.Y.) is expected to hold a vote for a House-passed measure to suspend the debt limit through next December on Wednesday, though Republicans have pledged to block it. The Senate parliamentarian, who advises lawmakers on chamber rules, said Monday that Democrats would be able to use a special budgetary process called reconciliation to pass a debt ceiling measure without Republican support, but Schumer has rejected that as a too lengthy and complicated process.

Surprising Fact

Republicans voted to suspend the debt limit three times under former President Donald Trump, most recently in 2019 with an overwhelmingly bipartisan vote.

Further Reading

Schumer Sets Time Line For Debt Ceiling Showdown As Lawmakers Scramble To Avert ‘Economic Catastrophe’ (Forbes)

Republicans Block Democratic Effort To Raise The Debt Ceiling As Officials Warn Of Economic Catastrophe (Forbes)

Yellen Warns Treasury Stands To Run Out Of Cash On October 18, Causing ‘Serious Harm’ To Business (Forbes)

It’s A ‘Gimmick’: Yellen Opposes Minting Trillion-Dollar Coin To Save The United States From Historic Debt Default (Forbes)


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