Bank Warns Texans Could Feel the Impact of Debt Limit Default

Debt Ceiling Road Sign
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The average Dallas resident won’t be spared if the U.S. Government defaults on its debt. 

“In the event there is a big financial shock and tightening of conditions, that could trickle down and impact borrowing rates for businesses and consumers,” said Andrew Schneider, a BNP Paribas (BNPP) economist in New York. 

As a result, it’s understandable that Texans remain worried unless a resolution is agreed upon by Congress. 

“In these circumstances where you have brinksmanship and the back and forth between political parties, there’s the possibility for miscalculation that could result in a technical default,” Schneider told Dallas Express. 

On Sept. 8, the Secretary of the U.S. Department of the Treasury Janet Yellen sent a letter to Speaker of the House Nancy Pelosi urging Congress to address the debt limit because the United States could land in a position of being unable to meet its obligations if all available measures and cash on hand are fully exhausted. 

“Dear Madam Speaker,” Yellen wrote. “I am writing to follow up on my previous letters regarding the debt limit and to provide additional information regarding the Treasury Department’s ability to continue to finance the government in the absence of Congressional action to address the debt limit.” 

As previously reported, the debt ceiling is how much money federal lawmakers allocate for the Treasury Department to borrow to operate the U.S. Government. 

“As we get closer to any X date, the risks do increase,” said Shahid Ladha, a BNPP inflation strategist, at this week’s BNPP 2021 4th Quarter Global Outlook webinar. Therefore, the probability of any risk to the credit rating and technical risk of default do increase but we continue to expect a resolution before we get to that situation. Most likely with some type of bipartisan consensus or agreement.” 

The X date is when the U.S. Treasury runs out of cash and the ability to use extraordinary measures, which include the Civil Service Retirement and Disability Fund, the Postal Service Retiree Health Benefits Fund, and the Government Securities Investment Fund of the Federal Employees’ Retirement System Thrift Savings Plan. 

“At a time when American families, communities, and businesses are still suffering from the effects of the ongoing global pandemic, it would be particularly irresponsible to put the full faith and credit of the United States at risk,” Yellen stated in her letter. 

The letter was copied to House Republican Leader Kevin McCarthy, Senate Majority Leader Charles E. Schumer, Senate Republican Leader Mitch McConnell as well as House Committee Ways and Means Chairman Richard E. Neal, House Committee on Ways and Means Ranking Member Kevin Brady, Senate Committee on Finance Chairman Ron Wyden, and Senate Committee on Finance Ranking Member Mike Crapo. 

The former Federal Reserve chair added that cash on hand and extraordinary measures would likely be exhausted next month and urged Pelosi to act as soon as possible on a bipartisan resolution. 

“We have learned from past debt limit impasses that waiting until the last minute to suspend or increase the debt limit can cause serious harm to business and consumer confidence, raise short-term borrowing costs for taxpayers, and negatively impact the credit rating of the United States,” Yellen stated. “A delay that calls into question the federal government’s ability to meet all its obligations would likely cause irreparable damage to the U.S. economy and global financial markets.” 

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