Treasury secretary warns debt standoff risks ‘self-imposed calamity’

Yellen, visiting Africa, says Congress is likely to ultimately raise the borrowing limit.

DAKAR, Senegal — U.S. Treasury Secretary Janet L.Yellen said Saturday that she expects Congress will ultimately vote to raise America’s debt limit, but that House Republicans’ demands for spending cuts in return are “very irresponsible” and risk creating a “selfimposed calamity” for the global economy.

The Biden administration and GOP lawmakers have been at loggerheads over increasing the federal government’s legal borrowing capacity. The government hit the current $31.381trillion debt cap Thursday, forcing the Treasury Department to take “extraordinary” accounting steps to keep the government running.

In an interview with the Associated Press during her trip to Africa, Yellen said that threatening to withhold approval for a higher debt limit unless there are spending cuts was “a very irresponsible thing to do” and could have serious consequences even 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 effects of the 2011 debt showdown.

A default, Yellen said, would be “a self-imposed calamity in the United States and the world economy.”

The Treasury’s extraordinary measures mean the government should be able to operate into June, when the limit must be increased to avoid potentially significant economic damage.

Yellen said she had not spoken with newly elected House Speaker Kevin McCarthy (R-Bakersfield). He has yet to spell out the size and targets of the cuts he contends are needed.

President Biden and administration officials have called for a “clean increase” to the debt limit — one that is not linked to cuts — saying an extended impasse could lead to a deep recession that would echo worldwide if faith is lost in the U.S. government’s credit.

“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 debt levels are sustainable, “but it can’t be negotiated over whether or not we’re going to pay our bills.”

Yellen said she believes the situation ultimately will be defused because lawmakers can appreciate the escalating danger if the federal government is unable to pay its bills: crashing financial markets, mass firings, and an economic downturn that could jeopardize America’s standing in the world.

The Treasury secretary said officials from the White House and her department “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 discussing a range of topics with McCarthy, but did not mention an invitation or a date for a meeting.

Yellen said the administration’s position remains to not negotiate over the debt limit; she did not detail possible administration strategies to ensure the ceiling is raised.

“Congress has to do it,” she said. “It has to be done. It can’t be something that’s contingent on cuts.”

Yellen sat down for the interview Saturday 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 signaling support for improving the economies of African countries, many of which have young populations that will make those nations the drivers of growth in decades to come. At an African nation summit in Washington last month, Biden said he would visit the continent this year.

Before the interview, Yellen went to Senegal’s Goree Island, where she toured a building known as the House of Slaves that was a center for the Atlantic slave trade that defined much of U.S. 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 issues are not just a matter of social justice but political pragmatism, given that Black voters are a key constituency.

Yellen said the administration had not turned to reparation payments or programs for slaves’ descendants.

“We have a program to try to address these issues that involves many positive steps and adjustments and increasing opportunity,” she said.

The administration 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.

Relations between the U.S. and China — the world’s two largest economies — have become increasingly antagonistic amid China’s friendship with Russia, the persistence of the coronavirus, and open globalization that has given way to national security priorities.

The last two U.S. administrations have challenged China’s trade practices, with the Biden administration limiting advanced computer chip exports as it tries to boost the U.S. sector.

“We want to make sure that we don’t create the same problems that Chinese investment has sometimes created here. That we have ... projects that really bring broad-based benefits to the African people and don’t leave a legacy of unsustainable debt.”

Yellen said she had been struck by “a sense of dynamism and optimism among all of the government officials and private sector people” she had met in Senegal.

She pointed to female entrepreneurs who have received seed money through the Senegalese government.

“There’s a kind of vibrancy about the country and a can-do spirit that we saw,” Yellen said. “They’re coming up with very innovative and original ideas about what they can do to both satisfy local needs and ... find a global market.”