At 78 years old, Santiago Matheus of Dania Beach is carefully watching the looming political showdown in Washington over whether the nation’s debt ceiling should be raised anew.
“Of course I’m worried,” he said. “It would be an unprecedented situation if they allow the debt limit to be not increased on time.”
Matheus, who was once a Wall Street securities broker and who recently emerged from personal bankruptcy, said he’d lose 40% of his income if his Social Security payments are halted because the government can no longer pay its bills.
“If that was to stop I would be in serious trouble,” he said. “You never really think of not relying on that.”
The potential dilemma emerged earlier this year when the U.S. Government hit the $31.4 trillion limit on authorized borrowing. Since then, Treasury Secretary Janet Yellen, a past chair of the Federal Reserve, has used so-called extraordinary measures so the government could pay its bills.
“Failing to increase the debt limit would have catastrophic economic consequences,” according to a policy statement on the Treasury Department website. “It would cause the government to default on its legal obligations — an unprecedented event in American history. That would precipitate another financial crisis and threaten the jobs and savings of everyday Americans — putting the United States right back in a deep economic hole, just as the country is recovering from the recent recession.”
The department also notes that the debt limit “does not authorize new spending commitments. It simply allows the government to finance existing legal obligations that Congresses and presidents of both parties have made in the past.”
Yet, the showdown between the Biden Administration and Republicans in Congress is about future spending and the spiraling federal deficit. Republicans want the White House to accede to spending cuts as a price for authorizing another increase in the debt ceiling.
Social Security “Escape Clause”
For the estimated 70 million Americans who are collecting Social Security, there is a federal law on the books that would keep payments flowing in the event of a default, said Steve Robinson, chief economist at The Concord Coalition, a bipartisan nonprofit that has advocated for fiscal restraint since 1992, when the federal deficit stood at $4 trillion.
A so-called escape clause passed by Congress in 1996 allows the Treasury Department to draw from Social Security and Medicare trust funds should there be a delay in raising the debt ceiling.
“The Treasury has the authority to redeem trust fund securities to pay benefits,” Robinson said by email. ”However, Congress would need to pass legislation to repay the trust fund for any interest it might lose as a result of the redemption — such authority currently exists with respect to the civil service trust fund.”
Robinson, however, is not enthusiastic about invoking the 1996 law.
“Congress should increase the debt limit and avoid additional extraordinary measures,” he said.
Original Source: The Florida Sun Sentinel