- Secretary Yellen on Wednesday asked Congress to extend a July deadline to repay part of the federal debt.
- Without an extension, she warned of a “catastrophic” default that could hurt economic recovery.
- Some in the GOP have signaled that they want spending cuts in exchange for an increase in the debt ceiling.
- See more stories on the Insider business page.
Treasury Secretary Janet Yellen on Wednesday urged Congress to extend the July 31 deadline to repay part of the federal government’s $ 28 trillion debt to investors and foreign governments.
Without the extension, she warned of an “absolutely catastrophic” default that would jeopardize the country’s economic recovery after the pandemic.
“I think the default of the national debt should be considered unthinkable,” she told the Senate Appropriations Committee, calling “quite unprecedented in American history that the United States government did not. does not comply with its legal obligations “.
Although borrowing is a routine cycle that the federal government uses to keep the country going through bond sales, it hits its “mark.debt ceilingJuly 31 and must service its debt before it can borrow more. The Treasury has the ability to hold payments beyond that date, but Yellen said it could exhaust those measures during the month of July. August during the month-long Congressional recess Debt ceiling does not mean additional federal spending.
If the federal government defaults, Yellen said it could trigger a chain reaction of liquidity shortages starting with holders of U.S. bonds, which include individuals, businesses and foreign governments.
“I think that would precipitate a financial crisis,” Yellen said. “It would threaten the jobs and economies of Americans and at a time when we are recovering from the COVID pandemic.”
Congress last suspended the borrowing limit in July 2019 for two years under President Donald Trump. Yellen also pointed out that the pandemic is causing uncertainty over the Treasury’s emergency powers to intervene with emergency payments if it becomes necessary.
Some Republicans have signaled they will push for spending cuts in exchange for signing a debt ceiling increase, despite backing a wave of red ink under Trump. Among many Democrats, memories of a 2011 brawl between House Republicans and President Barack Obama over the debt ceiling are still fresh, as it brought stocks down and caused America’s first credit downgrade. .
“This is a page from the Obama-era economic sabotage playbook, and I will not let Republicans play games with the economy for their political benefit,” the Senator told Insider. Ron Wyden of Oregon, Chairman of the Senate Finance Committee. in April.