Janet Yellen says Treasury is prepared to pay the US’s bills to prevent ‘irreparable harm’ to the economy as GOP balks at raising debt ceiling

Mitch McConnell Janet Yellen Congress Treasury
Senate Minority Leader Mitch McConnell and Treasury Secretary Janet Yellen.

  • Yellen said Treasury is prepared to pay off the country’s bills starting August 2.
  • It comes as McConnell opposes raising the debt ceiling without political concessions.
  • Yellen said even the threat of a default risks major damage to the US economy.
  • See more stories on Insider’s business page.

Treasury Secretary Janet Yellen sent a letter to Congress urging lawmakers to renew the federal government’s ability to pay off its debt ahead of a major deadline, warning that failing to do so in a timely manner risks major damage for average people and the economic recovery.

Republicans led by Senate Minority Leader Mitch McConnell are balking at raising the debt limit without ensuring spending cuts from Democrats. He suggested earlier this week that Democrats would have to do it on their own with no GOP support.

In the letter, Yellen said the US will hit its statutory debt limit on August 1. The next day, she said Treasury is prepared to take “certain extraordinary measures” to pay the country’s outstanding bills and prevent a default that could ripple through the global economy.

“Failure to meet those obligations would cause irreparable harm to the economy and the livelihoods of all Americans,” Yellen wrote on Friday to House Speaker Nancy Pelosi. She noted that raising the debt ceiling doesn’t prompt more federal spending, it only authorizes the government to pay what it already owes.

Yellen underscored the potential damage that even the threat of a default could have on the economy. She cited a 2011 showdown between Obama and House Republicans that led to the first-ever credit downgrade of US debt. Yellen also said it’s hard to predict when Treasury would exhaust its ability to pay off the US’s bills on its own.

On Wednesday, the nonpartisan Congressional Budget Office forecasted Treasury would “probably” run out of cash sometime in October or November.

Republican opposition is hardening now that President Joe Biden sits in the White House. In July 2019, they voted to suspend the borrowing limit for two years under President Donald Trump.

A default from the federal government could precipitate a chain reaction of cash shortages, starting with US bondholders that include people, businesses, and foreign governments. Democrats insisted this week they wouldn’t allow the GOP to use the debt ceiling as a political weapon.

“We’ll handle our business,” Sen. Brian Schatz of Hawaii, a cosponsor of a bill to abolish the debt ceiling, told Insider on Wednesday. “This is something the Hill freaks out about every year or so. We will not negotiate over it, we will not concede anything and we won’t fail to do our job.”

The Biden administration is pushing lawmakers to raise the debt ceiling ahead of the August 2 deadline.

“We certainly expect Congress to act in a bipartisan manner as they did three times under the prior administration to raise the debt limit,” White House Press Secretary Jen Psaki said Friday.

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Democrats slam Mitch McConnell for taking economy ‘hostage’ by rallying GOP against extending US’s ability to pay its bills on time

McConnell
Senate Minority Leader Mitch McConnell said Trump is still “liable” for his conduct in office.

  • Democrats assailed Mitch McConnell for trying to rally Republicans against raising the debt ceiling.
  • “He’s not going to be able to hold the economy hostage,” a top Democrat said Wednesday.
  • Republicans had previously backed raising the debt ceiling under Trump.
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Congressional Democrats slammed Senate Minority Leader Mitch McConnell of Kentucky on Wednesday for threatening to oppose an extension of the US’s ability to pay its bills, a step that could jeopardize the US’s economic recovery if Congress doesn’t act.

Sen. Ron Wyden, chair of the Senate Finance Committee, told reporters that the national debt ballooned under President Donald Trump as a result of the pandemic and a 2017 Republican tax law that reduced the country’s tax revenue from large corporations. The debt grew $7 trillion under the Trump administration.

“Now Mitch McConnell wants to skip out on paying the bills, we are not going to let him do it. He’s not going to be able to hold the economy hostage,” Wyden said. “We are going to move this quick.”

Wyden said Democrats didn’t make political demands in exchange for supporting raising the debt ceiling while Trump was in office. He described McConnell’s move as “stallball.”

“Mitch McConnell is playing Russian roulette with this economy,” Sen. Dick Durbin of Illinois, the second-ranked Democrat in the upper chamber, told reporters.

The Kentucky Republican said in an interview published on Punchbowl News on Monday that Republicans wouldn’t strike a deal with Democrats to raise the debt ceiling, the statutory limit that the federal government can borrow to pay its bills.

McConnell said Democrats would have to do it alone through reconciliation, a legislative track that only requires a majority vote and would therefore be feasible to pass without Republican support.

Wyden declined to answer Insider when asked if it would be difficult to get all 50 Senate Democrats onboard. Still, there were signs that the Biden administration had no intention of striking a deal with the GOP.

“We expect Congress to act in a timely manner to raise or suspend the debt ceiling, as they did three times on a broad bipartisan basis during the last administration,” White House press secretary Jen Psaki said Wednesday. Still, Democrats have not decided how to raise the debt ceiling only nine days before it expires.

“They have to decide what the strategy is, but I do think it’s going to be easy to get Democrats onboard,” Sen. Tim Kaine of Virginia, a member of the Senate Budget Committee, told Insider on Wednesday.

The US is scheduled to hit the debt ceiling limit on July 30, two years after it was last extended. But the Treasury Department has the ability to to pay off the US’s debt on its own for a limited time and head off a default with potentially catastrophic consequences for the economy.

The nonpartisan Congressional Budget Office forecasted on Wednesday the Treasury would “probably” run out of cash sometime in October or November.

Other Democrats simply shrugged off McConnell’s threat.

“‘Meh’ is my official response,” Sen. Brian Schatz of Hawaii, a Democrat sponsoring a bill to abolish the debt ceiling, said in an interview. “Doesn’t matter, we’ll handle our business. This is something the Hill freaks out about every year or so. We will not negotiate over it, we will not concede anything and we won’t fail to do our job.

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Mitch McConnell says GOP won’t strike a deal with Democrats for the US to pay its bills on time, raising risk of derailing the economic recovery

mitch mcconnell
Senate Minority Leader Mitch McConnell, R-Ky., does a cable news interview before the start of a two-week recess, at the Capitol in Washington, Wednesday, June 23, 2021.

  • McConnell ruled out GOP cooperation with Democrats to raise the debt ceiling.
  • “I can’t imagine there will be a single Republican voting to raise the debt ceiling after what we’ve been experiencing,” McConnell told Punchbowl News.
  • Treasury Secretary Yellen warned of an “absolutely catastrophic” hit to the recovery if the debt ceiling isn’t raised.
  • See more stories on Insider’s business page.

Senate Minority Leader Mitch McConnell said that he doesn’t envision any Congressional Republicans voting alongside Democrats to renew the federal government’s authority to pay its bills.

That raises the prospects of derailing the economic recovery if the debt limit isn’t raised quickly enough.

“I can’t imagine a single Republican in this environment that we’re in now – this free-for-all for taxes and spending – to vote to raise the debt limit,” McConnell told Punchbowl News, adding Democrats would have to raise it alone in a party-line bill that’s taking shape.

The Kentucky Republican’s remarks represents a major warning to Democrats as they begin assembling a $3.5 trillion reconciliation plan that’s poised to clear Congress without GOP votes. That’s the legislative pathway for certain bills to be approved with only a majority vote.

The federal government’s borrowing authority is set to end on July 30.

Treasury Secretary Janet Yellen urged lawmakers to raise it as she testified before a panel last month, raising alarm about an “absolutely catastrophic” hit to the economic recovery if the government’s borrowing authority isn’t renewed. Raising the debt limit doesn’t mean federal spending will increase.

If the federal government defaults, Yellen said it could trigger a chain reaction of cash shortages starting with US bond holders that include individuals, businesses, and foreign governments.

The Treasury Department can tap into emergency powers to keep payments flowing until a certain date. But Yellen told Congress it’s tough to predict when those will be exhausted this summer given the economic uncertainty stemming from the pandemic.

Republicans voted to suspend the borrowing limit in July 2019 for two years under President Donald Trump. Experts say Democrats could raise the ceiling in a reconciliation package sometime this fall. But that would require them to list a numerical figure because of the process’s strict budgetary rules, opening the door for GOP political attacks on Democrats as big spenders while the national debt tops $28.5 trillion.

On Wednesday, Republican Sen. Lindsay Graham of South Carolina is set to hold a press conference about Democrats’ “reckless tax and spending spree.”

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Treasury Secretary Janet Yellen warns of ‘absolutely catastrophic’ hit to economic recovery this summer if US can’t pay its bills on time

janet yellen fed
  • On Wednesday Secretary Yellen asked Congress to extend a July deadline to pay back some of the federal debt.
  • Without an extension, she warned of a “catastrophic” default that could hurt economic recovery.
  • Some in the GOP have signaled they want spending cuts in exchange for increasing the debt ceiling.
  • See more stories on Insider’s business page.

Treasury Secretary Janet Yellen urged Congress on Wednesday to extend a July 31 deadline to pay down a portion of the federal government’s $28 trillion in debt to investors and foreign governments.

Without the extension, she warned of an “absolutely catastrophic” default that would imperil the nation’s economic recovery from the pandemic.

“I think defaulting on the national debt should be regarded as unthinkable,” she told the Senate Appropriations Committee, calling it “utterly unprecedented in American history for the US government to default on its legal obligations.”

Though borrowing is a routine cycle the federal government uses to keep the country running through the sale of bonds, it’s reaching its “debt ceiling” on July 31 and needs to service its debt before it can borrow more. The Treasury has some ability to keep payments flowing beyond that date, but Yellen said it could exhaust those measures sometime in August during the month-long Congressional recess. Increasing the debt ceiling does not mean additional federal spending.

If the federal government defaults, Yellen said it could jumpstart a chain reaction of cash shortages starting with US bond holders, which include individuals, businesses, and foreign governments.

“I believe it would precipitate a financial crisis,” Yellen said. “It would threaten the jobs and savings of Americans and at a time we’re recovering from the COVID pandemic.”

Congress last suspended the borrowing limit in July 2019 for two years under President Donald Trump. Yellen also emphasized the pandemic is causing uncertainty around the Treasury’s emergency powers to step in with emergency payments if it became necessary.

Some Republicans have signaled they will press for spending cuts in exchange for signing onto a debt ceiling increase, despite supporting a surge of red ink under Trump. Among many Democrats, memories of a 2011 brawl between House Republicans and President Barack Obama on the debt ceiling are still fresh, as it sent stocks tumbling and caused the first downgrade to US credit.

“This is a page from the Obama-era economic sabotage playbook, and I’m not going to let Republicans play games with the economy for their political benefit,” Sen. Ron Wyden of Oregon, chair of the Senate Finance Committee, told Insider in April.

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