If there is no deal on debt between Democrats and Republicans, what expenses will need to be cut? potential victims.
In 2022, Social Security and the Department of Health, the source of pensions, jointly contributed about $2.8 trillion of the total $6.27 trillion budget through Medicaid and Medicare programs. This corresponds to approximately 45% of federal state expenditure.
If they are short on funds because they cannot issue bonds, they may resort to accounting tricks. Delaying some payments is one Treasury approach, The Washington Post reported.
It’s only a temporary solution.
If political disagreements persist, governments should prioritize paying public debt to avoid default.
Treasury Secretary Janet Yellen has already stressed that money alone won’t do it all without more debt-issuing capacity.
For the most vulnerable Americans, whether retirees, sick, or poor, the impact can be devastating: delinquent pension payments, overpowered health centers, and more.
Medicare will account for 26% of hospital spending in 2021, according to the Department of Health. If the flow of funds stops, some health centers will not be able to recover.
sale of assets
Another solution is for pension-paying Social Security and the Ministry of Health to sell their assets in the financial markets.
These distributions have two sources of funding. One is money from the federal budget (over $1 trillion in 2022) and the other is dividends or interest generated by investments, similar to most common pension funds.
However, the law mandates investment only in revenue-generating public assets, limiting investment possibilities primarily to U.S. Treasuries, which, in the event of a U.S. default, could jeopardize the value of government bonds. is likely to crash.
Healthcare and pension institutions will therefore effectively lose these funding alternatives.
Social Security holds nearly $2.8 trillion in assets, surpassing the $1.36 trillion in the U.S. military pension plan, making it the world’s first holder of government bonds. Converted to current bond values, this is the equivalent of two years of funding.
The Department of Health has $430 billion available, which at current values would provide about 3-4 months of funding.
If this alternative works, it will buy the government time. But Cornell University law professor Robert Hockett said, “We could accuse the Republican Party of not curbing spending after pushing the president in this direction.”