Treasury Secretary Janet Yellen on Wednesday pleaded with lawmakers to raise the federal debt ceiling to stave off an “unthinkable” first-ever default on U.S. debt obligations that could spark a financial crisis.
Yellen made the remarks in testimony before a Senate Appropriations subcommittee, urging lawmakers to raise the legal cap on how much the federal government can owe, while warning that, if they don’t agree, there could be “absolutely catastrophic economic consequences.”
Congress in 2019 suspended the borrowing limit through July 31, 2021. If the debt ceiling cap suspension is allowed to lapse, the Treasury Department will be unable to raise additional funds by selling government securities and will have to resort to emergency measures to keep meeting its debt obligations.
In the past, the Treasury has resorted to extraordinary measures like suspending contributions to government employee pension funds to maintain its ability to keep making debt payments. But spending on COVID-19 relief programs has added uncertainty to government cash flows. Yellen said such measures could be exhausted in August, when Congress takes its traditional summer recess.
She said that a first-ever default on U.S. government debt obligations “would precipitate a financial crisis, it would threaten the jobs and savings of Americans at a time when we’re still recovering from the COVID pandemic.”
“I think defaulting on the national debt should be regarded as unthinkable,” Yellen said, adding that “failing to increase the debt limit would have absolutely catastrophic economic consequences.”
Raising the debt ceiling would require buy-in from at least 10 Senate Republicans to overcome the filibuster. Some GOP senators have said it’s unlikely their caucus will back hiking the cap unless some kind of spending reform measures are adopted.
Republicans have been vocal in their opposition to the Biden administration’s big ticket spending proposals, with President Joe Biden’s budget for fiscal year 2022 totaling around $6 trillion.
BY TOM OZIMEK
