The US will hit the debt limit on January 19, Yellen told CongressThank you for reading this post, don't forget to subscribe!
WASHINGTON — Treasury Secretary Janet L. Yellen warned Friday that she would have to begin implementing “emergency measures” to continue paying the nation’s bills this month if lawmakers did not act to raise the statutory debt limit and that its powers to defer default could run out by early June.
Ms. Yellen’s letter to Congress was the first sign that House Republican resistance to lifting the borrowing ceiling could put the US economy at risk and signaled the start of an intense fight in Washington this year over spending and deficits.
“The government’s default would cause irreparable harm to the U.S. economy, the livelihoods of all Americans, and global financial stability,” Ms. Yellen wrote.
The Treasury secretary said there was significant uncertainty about how long she could use default delay measures and that she would keep Congress informed of the fiscal situation. Ms. Yellen said she would initiate a freeze on new investments in the Civil Service Retirement and Disability Fund and the Postal Service Retiree Health Benefit Fund and a freeze on reinvestment of the System’s Thrift Savings Plan’s Treasury Investment Fund for federal employee retirement later this month to avoid breaching the debt limit.
The letter marks the beginning of what is expected to be a protracted and potentially damaging economic battle. Republicans, who took control of the House last week, have insisted that any increase in the debt limit be accompanied by significant spending restraints, likely to include cuts in both military spending and domestic issues unrelated to national defense.
Understand the US debt ceiling
What is the debt ceiling? The debt ceiling, also called debt limit, is a cap on the total amount of money the federal government is authorized to borrow through U.S. Treasury securities, such as bills and savings bonds, to meet its financial obligations. Because the United States runs a budget deficit, it has to borrow huge amounts of money to pay its bills.
House Speaker Kevin McCarthy has cited reducing the national debt — which topped $31 trillion last year and has grown under both Republican and Democratic administrations — as a central focus of his agenda.
“One of the biggest threats we have to this nation is our debt,” Mr. McCarthy said on Fox News on Tuesday night, adding: “We don’t want to just have this crazy spending.”
On Monday, House Republicans adopted new rules governing legislation that makes it harder to raise the debt limit and strengthens Republicans’ ability to demand that any increase be accompanied by spending cuts.
President Biden has said he will refuse to negotiate the debt limit and that Congress must vote to raise it without any strings attached.
These positions increase the likelihood of a debt limit breach, which could lead to the United States defaulting on its debt for the first time in history.
The country has come close before, including in 2011 when former President Barack Obama and Republicans agreed to an 11th-hour deal to prevent a debt-limit breach.
After prolonged angst, in late 2021 Congress agreed to raise the borrowing ceiling to $31 trillion. Ms. Yellen warned that a breach of the debt limit and a default would trigger a deep recession and do irreparable damage to the United States economy. She has dismissed speculation and theories that the Treasury Department or the White House could unilaterally remove the loan cap as unrealistic and has previously called for the entire mechanism to be scrapped.
“I respectfully urge Congress to act immediately to protect the full faith and trust of the United States,” Ms. Yellen wrote in the letter.
Karin Jean-Pierre, the White House press secretary, reiterated on Friday that Mr. Biden would not negotiate with Republicans on the debt limit and expected Congress to raise it in a bipartisan vote.
“This must be done without conditions,” she said at an afternoon press briefing. “There will be no negotiations on this. It’s something that has to be done.”
Despite Ms. Yellen’s warning on Friday, many analysts and policymakers believe an agreement on the debt limit will eventually be reached before it is too late.
“Today’s announcement from the Treasury Department is noteworthy, but not cause for panic,” said Shai Akabas, director of economic policy at the Bipartisan Policy Center. “However, it is time for both sides to start serious negotiations.”
He added: “In this time of continued inflation and economic anxiety, the last thing the American people need is the noise of a debt limit fight or, much worse, a default on our obligations.”
Kristalina Georgieva, the managing director of the International Monetary Fund, told reporters on Thursday that she hoped the crisis over the debt limit would be avoided this year.
“Debt limit discussions are always quite intense,” Ms. Georgieva said. “History teaches us that eventually a solution is found.”
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