Yellen warns the US that it will reach its debt limit next week
Treasury Secretary Janet Yellen Friday’s warning to the U.S. that it will reach its debt limit by Thursday warned that Congress would not act fast and the government might be unable pay its bills as soon as June if Congress does not take swift action.
In a letter addressed directly to the four major congressional leaders, Yellen stated that the Treasury Department would begin to deploy so-called “extraordinary” measures to stop the U.S. from falling behind on its obligations.
She said that Congress should have until June at the earliest to increase or suspend the country’s $31.4 trillion borrowing limit.
“Failure to meet the government’s obligations would cause irreparable harm to the U.S. economy, the livelihoods of all Americans, and global financial stability,” Yellen said. “I respectfully request Congress to immediately act to protect the full faith, credit and sovereignty of the United States.
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According to the Committee for a Responsible Federal Budget, (CRFB), “Extraordinary Measures” could be taken by the Treasury to include halting certain government pension fund contributions, suspending securities of state and local governments, and borrowing money that is set aside to manage fluctuations in exchange rates.
In her letter, Yellen said the two extraordinary measures that Treasury expects to use are redeeming existing — and suspending new — investments of the Civil Service Retirement and Disability Fund and the Postal Services Retiree Health Benefits Fund. The Federal Employees Retirement System Thriftsavings Plan will be subject to a suspension of reinvestment in the Government Securities Investment Fund.
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The debt ceiling The legal limit on federal government borrowing on behalf of the public is $2.5 trillion. This includes Social Security, Medicare, and military salaries.
In December 2021, Congress last voted on raising the debt ceiling.
The U.S. would have to temporarily default on its obligations if it fails to increase or suspend its debt limit. This could have severe and potentially negative economic consequences. According to the CRFB, even the threat or default could cause borrowing costs to rise. Interest rates will likely increase and Treasuries demand will drop.
Although the U.S. has never defaulted upon its debt, it was close to doing so in 2011, when the House Republicans refused to pass a debt ceiling increase. This led to Standard and Poor’s downgrading the U.S.’s debt rating by one notch.
After the House Republicans won the majority in the House, the uncertainty about the debt limit has returned. This means that Democrats have lost their one-party control over the House for the past two years. It also threatens to revive a game called brinkmanship regarding raising or suspending debt limits.
House Speaker Kevin McCarthy — who won the gavel after 15 rounds of voting — has indicated that Republicans could push for cuts to the federal budget, but said they “don’t want to put any fiscal problems through our economy, and we won’t.”
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McCarthy, R. Calif., said that he has not ruled in raising the debt limit. This is pointing out a 2019 debt-limit deal between then-President Donald Trump, and former Speaker Nancy Pelosi.
McCarthy stated Thursday that he had a good conversation with President Obama when he called him. He told me that if he calls me again, a meeting with McCarthy would be a good idea.