Yellen: Debt standoff risks ‘calamity’
Treasury secretary chides House GOP’s spending-cut stance
DAKAR, Senegal — U.S. Treasury Secretary Janet Yellen said Saturday she expects Congress will ultimately vote to raise America’s debt limit, but demands by House Republicans for spending cuts in return for backing an increase are “a very irresponsible thing to do” and risk creating a “self-imposed calamity” for the global economy.
The Biden administration and Republican lawmakers disagree over how to increase the government’s legal borrowing capacity. On Thursday, the government bumped up against the $31.4 trillion debt cap, forcing the Treasury Department to take “extraordinary” accounting steps to keep the government running.
Asked in an interview during her trip to Africa about such talk of withholding approval for a higher debt limit unless there are accompanying spending cuts, Yellen called that stance “a very irresponsible thing to do” and said it could have serious consequences before “the day of reckoning.”
“It is possible for markets to become quite concerned about whether or not the U.S. will pay its bills,” she said, pointing to the negative economic impacts of a debt showdown in 2011.
As for a potential default, she said, that “would impose a self-imposed calamity in the United States and the world economy.” The Treasury’s extraordinary steps so far mean that the U.S. government should be able to operate until some point in June, when the limit would need to be increased to avoid what could be significant economic damage.
Yellen said she has not spoken with California Rep. Kevin McCarthy, the new Republican speaker of the House. McCarthy has yet to spell out the size and target of the spending cuts that he contends are needed to put the federal government on a healthier financial path.
President Joe Biden and administration officials have called for a “clean increase” — not linked to cuts — to the borrowing capacity.
“Congress needs to understand that this is about paying bills that have already been incurred by decisions with this and past Congresses and it’s not about new spending,” Yellen said. She said she believes in making sure that government debt levels are sustainable, “but it can’t be negotiated over whether or not we’re going to pay our bills.”
Still, Yellen said she believes the situation ultimately will be defused because lawmakers can appreciate the escalating danger if the federal government was unable to pay all of its bills: crashing financial markets, mass firings and an economic downturn.
“I believe in the end we will find a way around this,” Yellen said.
She said that White House and Treasury officials “are meeting to discuss possible paths forward. And we will have discussions with members of Congress to try to understand what they see as a path forward.”
The White House said Friday that Biden “looks forward” to sitting down with McCarthy to discuss a range of topics. But its statement came with no invitation or a date for a meeting.
Yellen did not detail possible strategies being discussed inside the White House to ensure the ceiling is raised.
Yellen sat down for the Saturday interview in the middle of a continent-spanning trip in which she met with her Chinese counterpart in Switzerland before heading to Senegal, Zambia and South Africa.
The Biden administration is trying to signal its support for improving the economies of African countries, many of which have young populations that will eventually make those nations the drivers of growth in decades to come. At an African-nation summit held in December in Washington, Biden said he would visit the continent this year.
Before the interview, Yellen went to Senegal’s Goree Island, touring a building known as the House of Slaves that was a center for the Atlantic slave trade that defined much of American history.
The economist and former Federal Reserve chair has emphasized her desire to reduce racial and income inequality, an element of the systemic racism tied to slavery and its aftermath of segregation. For Democrats, the issue of how to bridge that divide is not just a matter of social justice but political pragmatism, given that Black voters are a key constituency for winning elections.
Yellen said the administration has not turned to payments and other programs intended for the descendants of slaves to address the inequality.
“The administration has not embraced reparations as part of the answer,” said Yellen, adding that “we have a program to try to address these issues that involves many positive steps and adjustments and increasing opportunity.”
America is trying to appeal to African countries on moral terms, saying aid and loans from the U.S. will be transparent and fair in ways that Chinese investments have not been.
Relations between the U.S. and China — the world’s two largest economies — have taken on an increasingly antagonistic streak amid the geopolitical fallout from China’s friendship with Russia, the persistence of the coronavirus and an era of open globalization that has given way to national security priorities.