ALBAWABA – United States (US) President Joe Biden finalised the signing of a bill to suspend the US debt ceiling on Saturday, giving the Treasury Department the green light to issue Treasury bills and securities in excess of $1 trillion, according to Bloomberg.
The Congressional Budget Office estimated the debt increase at $1.5 trillion.
Earlier this year, the US hit its debt ceiling at $31.4 trillion. Since then, efforts have been ongoing to pass the US debt deal, which would suspend the cap on borrowing.
The deal finally passed June 4, as the Treasury’s cash balance dropped below $23 billion on June 1.
In the months leading up to the deal, the treasury went through most of the government’s cash.
The department is now in a hurry to replenish its accounts to be able to meet the financial obligations of the federal government.
As a result, debt auctions are expected to soar in the coming weeks and months, which – according to Bloomberg – could have undesired consequences.
Among other things, it can drain liquidity from the banking sector, raise short-term funding rates, and put pressure on the economy, which Bloomberg economists say is headed for a recession.
US banks are also facing higher capital requirements starting at the beginning of 2025, which also adds to ongoing liquidity concerns.
Bank of America estimated the impact of the debt issuance to be equivalent to the economic impact of the Federal Reserve raising interest rates by one-quarter of a point.
