According to U.S. Treasury Secretary Janet Yellen, demands by House Republicans for spending cuts in exchange for supporting an increase are “a very irresponsible thing to do” and run the risk of causing a “self-imposed calamity” for the world economy. However, she expects Congress to ultimately vote to raise America’s debt limit.
Republican lawmakers and the Biden administration cannot agree on how to boost the government’s legal borrowing capability. The $31.381 trillion debt ceiling was reached by the government on Thursday, prompting the U.S. Treasury Department to employ “extraordinary” accounting measures to keep the nation afloat.
Yellen termed that approach “a really reckless thing to do” and said it may have major implications even before “the day of reckoning” when asked about such discussion of delaying approval for a higher debt limit unless there are concurrent budget cuts.
She noted the detrimental effects of a debt showdown in 2011, saying “it is feasible for markets to become pretty anxious about whether or not the U.S. will pay its payments.”
She stated that a possible default “would impose a self-imposed tragedy in the United States and the world economy.” Up until some point in June, the U.S. government should be able to function thanks to the exceptional measures taken by the Treasury, but then the limit would need to be raised in order to prevent what could be serious economic harm.
The freshly elected Republican speaker of the House, U.S. Rep. Kevin McCarthy, was not discussed by Yellen. McCarthy has not yet specified the scope and amount of the spending reductions that he claims are necessary to put the federal government’s finances on a more stable course.
President Joe Biden and administration officials have advocated for a “clean increase” in borrowing capacity, unrelated to any cuts, citing the dangers of a protracted standoff that might result in a severe recession that would potentially ripple throughout the globe.
This is about paying bills that have already been incurred due to decisions made by this and previous Congresses, not about fresh spending, Yellen stated. She stated that while she supports ensuring that the level of public debt is manageable, “it can’t be debated over whether or not we’re going to pay our debts.”
Despite the dire warnings, Yellen said she is optimistic that the situation will eventually be resolved because lawmakers understand the mounting threat that would result from the federal government’s inability to pay all of its bills: collapsing financial markets, widespread layoffs, and an economic downturn that could endanger America’s position in the global order.
I think we’ll eventually figure out a way to get around this, Yellen remarked.
The White House and representatives from her department “are convening to consider alternative pathways forward,” the treasury secretary stated. Additionally, we’ll speak with Congressmen and Women to learn their perspectives on the best course of action.