Yellen Tells Congress: U.S. Will Hit Debt Limit on Thursday - Liberty

Wednesday, October 11, 2023

Yellen Tells Congress: U.S. Will Hit Debt Limit on Thursday

 

"I respectfully ask Congress to act swiftly to protect the full trust and credit of America," Treasury Secretary Janet L. Yellen said in a letter to Congress on Friday. Winnie Au

Treasury Secretary Janet L. Yellen said on Friday that if lawmakers fail to act to raise the statutory debt ceiling, they will have to begin adopting "special measures" on Thursday to continue paying the national debt. warned that her powers to delay defaults could run out -- until early June.

Yellen's letter to Congress is the first sign that the U.S. economy could be in jeopardy if House Republicans resist removing the borrowing cap, citing Washington's most enormous spending and deficit this year. marks the beginning of a fierce battle in

Yellen said on Friday there is considerable uncertainty about how long tools to delay defaults can be used. She said that starting this month, she will begin halting new investments in the Civil Service Retirement and Disability Fund, the Postal Service Retirement Health Benefits Fund, and reinvestments in the Federal Employee Retirement Plan Savings Savings Plan in the Government Securities Investment Fund.

The letter is the beginning of a potentially protracted and economically damaging battle. Republicans, who took control of the House last week, have argued that raising the debt ceiling would likely come with significant spending restraints, including military and domestic issues cuts.

House Speaker Kevin McCarthy has pledged to reduce the national debt, which has risen under both Republican and Democratic administrations, including surpassing $31 trillion last year and increasing by about 40% under former President Donald J. Trump. cited as the central focus of his party's agenda.

Rep. Jason Smith, a Missouri Republican, and chairman of the powerful House Ways and Means Committee told Fox News on Friday, "The American people are demanding spending cuts. Fiscal reform must go forward." We cannot offer unlimited credit cards."

On Monday, House Republicans adopted new rules governing legislation that would make it harder to raise the debt ceiling and strengthen the Republican party's ability to require that any increase be accompanied by spending cuts. Senate Republicans have also argued that raising the debt ceiling must be tied to "structural spending reform."

Florida Senator Rick Scott, a Republican, said in a statement on Friday, "It's been a long time since Washington stopped spending reckless taxpayer dollars and started living within its means." said.

Some conservative economists encourage this tactic. Kevin A. Hassett, who chaired the White House Committee of Economic Advisers under Trump, said in a National Review column this week that if Congress does, in 30 years the country's total debt will be as large as the annual economy. warned that it could reach almost twice as many. Don't let your spending grow.

"The top Democrat said Friday that Republicans are threatening to harm an already fragile economy by risking a default," Hassett writes:

"Again, Republicans are demanding cuts to Medicare, Medicaid, and Social Security, and if they don't get what they want, they're willing to ruin the American economy, destroy a strong job market, It will push up interest rates and inflation, said Senator Ron Wyden of Oregon, who chairs the Senate Finance Committee.

President Biden has rejected negotiations over the debt ceiling, saying Congress must vote to raise it without conditions.

These positions increase the likelihood of a debt ceiling breach and could lead the US to default for the first time.

To avoid that, the White House is increasingly looking to a coalition of bipartisan support to bypass Republican leadership in the House and lift the debt limit.

That group includes all senior Democrats in the House and Senate, plus a handful of Republicans needed to pass legislation in both houses. Such a coalition could employ tactics rarely seen in the House. But the move means it will take weeks or months to produce a bill Biden can sign, and if Congress misjudges the date the Treasury Department will be unable to pay the country's bills, It may threaten the default.

The closer a country is to a potential default, the more damage the economy is likely to suffer. The brinkmanship between Republicans in Congress and President Barack Obama in 2011 raised borrowing costs for businesses and homebuyers, causing stock markets and consumer confidence to plummet. An actual default could shock the economy and plunge it into a recession as many government bills went unpaid, leaving the country with significantly higher borrowing costs for years to come.

After a prolonged standoff in late 2021, Congress agreed to raise the borrowing limit to $31 trillion. Yellen warned that breaking the debt ceiling and defaulting on the debt would cause irreparable damage to the economy. She has dismissed suggestions and theories that the Treasury Department or the White House could unilaterally raise the borrowing limit as unrealistic and has previously called for the entire mechanism to be scrapped.

"I respectfully request Congress to act swiftly to protect America's full confidence and credit," Yellen said in the letter.

White House and Treasury officials have reiterated that raising the debt ceiling only allows the federal government to use amounts that Congress has already approved, and that doing so is not a sign of fiscal recklessness. I have argued.

Mr. Biden has no intention of negotiating the debt ceiling with Republicans and hopes Congress will raise it with a bipartisan vote.

"This should be done unconditionally," she said at an afternoon press conference. "There is no negotiation about it."

Despite Yellen's warnings, many analysts and policymakers believe we will eventually reach an agreement on the debt ceiling before it's too late.

"Today's notice from the Treasury Department is notable but not cause for panic," said Shai Aqabath, director of economic policy at the Bipartisan Policy Center. "But it's time for both sides to negotiate seriously."

He said, "In this time of continued inflation and economic uncertainty, the last thing Americans need is a debt limit battle ruckus against the wall, or worse, a failure to meet our obligations." Added.

Wall Street analysts say House Republicans can finally save face and settle for a solution that "pauses" the debt limit until a certain date without actually raising the borrowing limit to a certain level. I think. This tactic, adopted by former Chairman John A. Boehner in 2013 and 2014, would give the Treasury Department more leeway to keep the government running.

“At the time, we were unable to secure a specific dollar increase in the debt ceiling, so Boehner came up with the idea of ​​'pausing' the debt ceiling until a certain date,” said Veda Partners director of economic policy. says Henrietta Treyz. The investment advisory firm wrote in a memo to clients this week: "This will prevent Congress from voting to approve a net budget increase, instead giving Congress the power to do whatever it needs to do by a specified date." was handed over to the Ministry of Finance.

Kristalina Georgieva, managing director of the International Monetary Fund, told reporters on Thursday that she hoped Congress would avoid a crisis over the debt ceiling this year.

“Debate about the debt ceiling is always very intense,” Georgieva said. “History teaches us that solutions will be found in the end.”

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