US Debt Ceiling Exceeded Orders Ahead... Will Biden's Reelection Prospects Be Shaken?

US Treasury "X-Day Orders Expected in Early June"

U.S. Treasury Secretary Janet Yellen has set the federal government's cash exhaustion date, known as "X-Day," as June 1. This is significantly earlier than previous predictions by Wall Street and the government, raising concerns about a potential default on U.S. Treasury debt as the deadline for a bipartisan debt ceiling agreement approaches in the coming weeks. With the Republican Party controlling the House of Representatives politicizing the debt ceiling issue and continuing the power struggle between the parties, this is expected to become a critical variable in the future presidential race of President Joe Biden, who has officially declared his re-election bid.

On the 1st (local time), Secretary Yellen stated that the U.S. federal government debt will exceed the legal limit of $31.381 trillion (approximately 42,145 trillion KRW) in early next month. In a letter sent to House Speaker Kevin McCarthy of the Republican Party, Yellen said, "Based on tax revenue estimates through April, the Treasury faces the risk of running out of cash in early June, possibly as soon as June 1." She also requested Congress to take measures such as raising or suspending the debt ceiling.

Immediately after Yellen's remarks, President Biden proposed a White House meeting with four congressional leaders: Senate Majority Leader Chuck Schumer (Democrat), Senate Minority Leader Mitch McConnell (Republican), House Speaker Kevin McCarthy, and House Majority Leader Hakeem Jeffries (Democrat) to discuss the debt ceiling. The meeting is scheduled for the 9th.

With the Treasury moving up the X-Day to early June, attention is focused on whether negotiations between the parties will gain momentum. The debt ceiling is a limit set by Congress on the amount of money the U.S. government can borrow. After reaching the $31.381 trillion limit in January, the Treasury has been using extraordinary measures to manage the situation and has been requesting Congress to raise the debt ceiling for several months.

In response, the Republican Party, criticizing the Biden administration for a passive approach to the debt ceiling and fiscal deficit issues, passed a spending cut bill linking the debt ceiling and fiscal deficit on the 26th of last month in the House. The Democratic Party maintains that discussions on the debt ceiling and fiscal deficit are separate, and the bill submitted by the Republicans is unlikely to pass in the Senate, where the Democrats hold the majority.

During a press conference in Israel, Speaker McCarthy reiterated his opposition to raising the debt ceiling without addressing the fiscal deficit, stating, "The only way to solve the problem is through negotiation," and added, "I look forward to President Biden changing his mind and negotiating with us," passing the ball to the President.

Janet Yellen, U.S. Secretary of the Treasury.
Photo by Reuters Yonhap News

The Wall Street Journal (WSJ) highlighted that the debt ceiling debate is occurring at a time when the U.S. economy is vulnerable due to high-intensity austerity measures. The U.S. GDP growth rate announced on the 27th of last month was 1.1%, significantly below the market forecast of 2.0%. As economic growth falls far short of expectations, concerns about a hard landing are growing, with some forecasts predicting a full-scale recession in the U.S. starting from the second quarter of this year.

Some worry that difficulties in debt ceiling negotiations under these circumstances could lead to liquidity concerns. In fact, last month, volatility became apparent in the U.S. short-term bond market, with the yield on one-month U.S. Treasury bills falling and the three-month yield soaring.

This shift reflects reduced demand for three-month bills due to increased default risk and a relative preference for the more stable one-month bills. Goldman Sachs previously warned that while the market impact of increased default risk is minimal, the situation could change if the Treasury moves up the X-Day.

President Joe Biden of the United States. [Image source=UPI Yonhap News]

The resolution of the debt ceiling issue is also expected to be a significant variable for President Biden, who recently officially announced his re-election bid. The Republican Party has fiercely criticized a series of economic policies by the Biden administration, including massive money printing during the COVID-19 pandemic and subsequent high-intensity monetary tightening, labeling them as examples of failure.

Earlier, President Biden harshly criticized, saying, "There should be no policy concessions in exchange for preventing default, and it is unacceptable for some hardline Republicans to hold the U.S. economy hostage." He also warned that if Congress does not take appropriate measures in time, he will have to seriously consider various alternatives.

One of the alternatives he mentioned is for the U.S. Treasury to issue a commemorative platinum coin with a face value of $1 trillion (approximately 1,235 trillion KRW) and deposit it with the Federal Reserve, the U.S. central bank. However, Treasury officials including Secretary Yellen oppose this option, stating it is not feasible and would not prevent economic damage caused by a potential default.

This content was produced with the assistance of AI translation services.