Debt limit just six days away, Congress told
Quick action critical, urges Yellen’s letter to lawmakers
WASHINGTON — Treasury Secretary Janet Yellen notified Congress on Friday that the U.S. is projected to reach its debt limit Thursday and will then begin employing “extraordinary measures” to continue paying the nation’s bills if lawmakers did not act to raise the statutory debt limit.
In a letter to House and Senate leaders, Yellen said her actions will buy time until Congress can pass legislation that will either raise the nation’s $31.4 trillion borrowing authority or suspend it again for a period of time. But she said it’s “critical that Congress act in a timely manner.”
“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 wrote.
“In the past, even threats that the U.S. government might fail to meet its obligations have caused real harms, including the only credit rating downgrade in the history of our nation in 2011,” she said, referring to the debt ceiling impasse during Barack Obama’s presidency, when Republicans had also just won a House majority.
In this new Congress, newly empowered GOP lawmakers who now control the House want to cut spending. The White House has insisted that it won’t allow the nation’s credit to be held captive to the demands of GOP lawmakers.
“We have seen both Republicans and Democrats come together to deal with this issue,” White House spokesperson Karine Jean-Pierre told reporters Friday. “It is one of the basic items that Congress has to deal with and it should be done without conditions.”
House Republican leaders liken the debt ceiling to a credit card limit and have said they would only raise the statutory ceiling if doing so also secures a spending
overhaul.
“The American people are the ones that’s demanding the cut in spending,” Rep. Jason Smith, R-Mo., chair of the powerful House Ways and Means Committee, said Friday on Fox News. “We have to have fiscal reforms moving forward. We cannot just give an unlimited credit card.”
House Speaker Kevin McCarthy has cited reducing the national debt — which topped $31 trillion last year and has increased during Republican and Democratic administrations, including about a 40% increase under former President Donald Trump — as a central focus of his party’s agenda.
McCarthy told reporters in his first news conference that he had a “very good conversation” with Biden about the coming debt ceiling debate.
“We don’t want to put any fiscal problems to our economy and we won’t, but fiscal problems would be continuing to do business as usual,” he said. “We’ve got to change the way we are spending money.”
On Monday, House Republicans adopted new rules governing legislation that make it more difficult to raise the debt limit and strengthen Republicans’ ability to demand that any increase be accompanied by spending cuts. Senate Republicans have also insisted that increases to the debt limit should be tied to “structural spending reform.”
Some conservative economists have encouraged the tactics. Kevin Hassett, chair of the White House Council of Economic Advisers under Trump, warned in a National Review column this week that the total national debt could reach nearly double the size of the annual economy 30 years from now if Congress did not stop spending growth.
“Brinkmanship now is the only thing that can save us from catastrophe,” Hassett wrote.
COST OF COMPROMISE
Any effort to compromise with House Republicans could force Biden to bend on his own priorities, whether that’s money for the Internal Revenue Service to ensure that wealthier Americans pay what they owe or domestic programs for children and the poor.
Republicans were threatening to damage an already fragile economy by risking a default, top Democrats said Friday.
Senate Majority Leader Charles Schumer and new House Minority Leader Hakeem Jeffries, both D-N.Y., said in a joint statement Friday “a default forced by extreme MAGA Republicans could plunge the country into a deep recession and lead to even higher costs for America’s working families on everything from mortgages and car loans to credit card interest rates.”
They said the two parties worked together to increase the debt limit three times when Trump was president and Republicans had majorities in the House and Senate.
“This time should be no different,” the Democratic leaders said.
Biden has said that he will refuse to negotiate over the debt limit and that Congress must vote to raise it with no strings attached.
Those positions increase the likelihood of a debt limit breach, one that could result in the United States defaulting on its debt for the first time. To avoid that, the White House is increasingly counting on a coalition of bipartisan support to bypass Republican leadership in the House and lift the debt limit.
That group includes the entire Democratic caucus in the House and Senate, plus a handful of Republicans needed to pass bills in both chambers.
Such a coalition could employ a discharge petition in the House to force a floor vote on raising the limit. But the move would take weeks or even months to produce a bill that Biden could sign into law, which could threaten default if lawmakers misjudge the date when Treasury can no longer pay the nation’s bills.
White House and Treasury officials have repeatedly made the case that raising the debt limit merely allows the federal government to spend money that Congress has already authorized and that doing so is not a sign of fiscal recklessness.
‘NOT CAUSE FOR PANIC’
While her department can’t estimate how long the extraordinary measures will allow the U.S. to continue to pay the government’s obligations, Yellen said “it is unlikely that cash and extraordinary measures will be exhausted before early June.”
Despite Yellen’s warning, many analysts and policymakers believe that a deal on the debt limit will ultimately be reached before it is too late.
“Today’s notification from the Treasury Department is notable, but not cause for panic,” said Shai Akabas, director of economic policy at the Bipartisan Policy Center. “It is, however, time for both parties to get serious about negotiations.”
He added, “In this time of ongoing inflation and economic anxiety, the last thing the American people need is the tumult of a back-againstthe-wall debt limit fight or, much worse, a default on our obligations.”
Kristalina Georgieva, the managing director of the International Monetary Fund, told reporters Thursday that she was hopeful that lawmakers would avoid a crisis over the debt limit.
“The discussions of debt limits are always quite intense,” Georgieva said. “History teaches us that, in the end, a solution is being found.”
Treasury first used extraordinary measures in 1985 and has used them at least 16 times since, according to the Committee for a Responsible Federal Budget, a fiscal watchdog.
Those measures include divesting some payments, such as contributions to federal employees’ retirement plans, in order to provide some headroom to make other payments that are deemed essential, including those for Social Security.
Past forecasts suggest a default could instantly bury the country in a deep recession, right at a moment of slowing global growth as the U.S. and much of the world face high inflation because of the pandemic and Russia’s invasion of Ukraine. The financial markets could crash and several million workers could be laid off.
The aftershocks could be felt for years. Moody’s Analytics called this risk “cataclysmic” in a 2021 forecast before the previous debt ceiling increase, suggesting that the resulting chaos would be a result of government dysfunction, rather than the underlying condition of the U.S. economy.