The local and state governments are being warned by President Joe Biden’s administration that a default risk on US Debt is likely to occur. This in turn might lead to a recession which might curb federal aid flow. As such, the administration is also urging Congress to either raise or suspend the ceiling for federal borrowing so that a crisis can be averted.
According to Bloomberg reports, if the debt ceiling is reached a recession could follow suit. Other adverse impacts might include the increase in the unemployment rate, there could be restricted economic growth, and even the labor market is likely to lose millions. This was announced in a letter by the White House that was made available to the state and local governments.
Aside from the above, the letter also mentioned as per Bloomberg news that disaster relief programs, education funds, child nutrition, Medicaid, health insurance programs for children, and infrastructure could all be disrupted as well.
Moreover, if it is seen that the US is defaulting on the obligations, the effects might be far-fetched and could also adversely impact states and cities across the United States.
The letter was released following a rejection of an appeal by Senate Minority Leader Mitch McConnell this week, which was appealed by Treasury Secretary Janet Yellen Republicans urging them to raise the federal debt ceiling by joining with the Democrats. This rejection has left both sides “at odds” with just a little time left to go when the limit is finally breached.
At the beginning of August, the debt limit had snapped back in place, however, the Treasury has been putting in extra efforts to keep a default at bay. But Yellen has given a warning that the said extra efforts will be running out sometime in October, according to Bloomberg news.
It also issued a warning that the S&P 500 could nosedive if there is a prolonged standoff and it is quite likely that the state pension fund assets’ value might fall leading to disruption in the ability of the states to meet their pension obligations. As such, the administration has urged Congress to suspend or increase the limit just as it was done in the past.
As per Bloomberg news, the Director Brian Deese of the National Economic Council said that the administration is anticipating that Congress will avoid the debt limit crisis.
The United States Conference of Mayors also urged Congress to act based on a bipartisan stand.
