US will hit debt ceiling on Thursday, Yellen tells Congress

WASHINGTON — If lawmakers don’t act to raise the statutory debt ceiling, Treasury Secretary Janet L. Yellen warned on Friday. Expires in early June.

Ms Yellen’s letter to Congress was the first sign of opposition from House Republicans to raising the borrowing cap. put the US economy at risk And this year marks the beginning of a serious fight in Washington over spending and deficits.

“The government’s failure to meet its obligations would cause irreparable harm to the U.S. economy, the livelihoods of all Americans, and global financial stability,” Ms. Yellen wrote.

Mrs. Yellen said on Friday that there was considerable uncertainty over how long she could use measures to delay default. He said he would freeze new investments in the Civil Service Pension and Disability Fund and the Postal Service Pensioners’ Benefit Fund, as well as freeze this month the reinvestment of the Central Employees Retirement System’s Thrift Savings Scheme’s government bond investment fund to avoid exceeding the debt ceiling. .

The letter is the start of what is expected to be a protracted and damaging economic fight. Republicans, who took control of the House last week, have insisted that any increase to the debt limit must be accompanied by significant spending controls.

Speaker Kevin McCarthy cited reducing the national debt — which peaked at $31 trillion last year and increased during Republican and Democratic administrations, including former President Donald J. A central focus of his party’s agenda — including an increase of about 40 percent under Trump.

“The people who are asking for spending cuts are the American people,” Representative Jason Smith, Republican of Missouri and chairman of the powerful House Ways and Means Committee, said on Fox News on Friday. We need to move financial reforms forward. We can’t just offer an unlimited credit card.

On Monday, House Republicans Adopted new rules Governing laws make it more difficult to raise the debt limit and strengthen Republicans’ ability to demand that any increase be accompanied by spending cuts. Senate Republicans have insisted that increases to the debt limit be tied to “structural spending reform.”

“It’s long past time for Washington to end its reckless spending of taxpayer dollars and start living within its means,” Senator Rick Scott, Republican of Florida, said in a statement Friday. “I look forward to working with House Republicans so we can stop bullying Democrats, finally end Biden’s raging inflation crisis and bring fiscal sanity to Washington.”

Some conservative economists have encouraged the tactics. Mr. Kevin A., chairman of the White House Council of Economic Advisers under Trump. Hassett warned in a National Review column this week that if the total national debt were to double the size of the annual economy 30 years from now, it would go to Congress. Cost does not stop growth.

“Now only brinkmanship can save us from disaster,” said Mr. Hassett wrote.

Top Democrats on Friday threatened to damage an already fragile economy by risking default on Republicans.

“Once again, Republicans are demanding cuts to Medicare, Medicaid and Social Security, and if they don’t get what they want, they’re poised to stall the U.S. economy, destroy a strong job market, and raise interest rates and inflation,” said Senator Ron of Oregon, chairman of the Senate Finance Committee. Wyden said.

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President Biden has said he refuses to negotiate on the debt ceiling and that Congress must vote to raise it with no strings attached.

Those levels increase the likelihood of a debt ceiling default, which could lead to the first time the U.S. could default on its debt.

To avoid that, the White House is increasingly counting on a coalition of bipartisan support to avoid Republican leadership in the House and raise the debt ceiling.

That committee requires the entire Democratic caucus in the House and Senate, and a handful of Republicans to pass bills in both chambers. Such a coalition could use a rare tactic in the House called a discharge petition to force a vote to raise the cap. But this action Mr. It could take weeks or even months to craft a bill that Biden could sign into law, which would threaten default if lawmakers misjudge the date when the Treasury can no longer pay the nation’s bills.

The closer the country gets to potential default, the more damage the economy is likely to do. The impasse between congressional Republicans and President Barack Obama in 2011 resulted in higher borrowing costs for businesses and homebuyers, along with falls in stock markets and consumer confidence. A true default could plunge the economy into recession as many government bills go unpaid and saddle the nation with significantly higher borrowing costs for years to come.

After a protracted deadlock in late 2021, Congress agreed to raise the debt ceiling to $31 trillion. Ms. Yellen has warned that exceeding the debt ceiling and defaulting would cause irreparable harm to the economy. He has dismissed suggestions and theories that the Treasury Department or the White House could unilaterally raise the borrowing cap, and has previously called for the entire mechanism to be scrapped.

“I respectfully urge Congress to act immediately to protect the full faith and goodwill of the United States,” Ms. Yellen wrote in her letter.

White House and Treasury officials have repeatedly argued that raising the debt ceiling would allow the federal government to spend money already authorized by Congress and that doing so is not a sign of fiscal irresponsibility.

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White House press secretary Karine Jean-Pierre said on Friday that Mr. Biden has said he won’t negotiate with Republicans on the debt ceiling and expects Congress to raise it in a bipartisan vote.

“It should be done without conditions,” he said at an afternoon press conference. “There will be no negotiation on that. This is something that needs to be done. “

Ms. Despite Yellen’s warning, many analysts and policymakers believe an agreement on the debt ceiling will eventually be reached before it’s too late.

“Today’s Treasury Department announcement is significant, but not panic-inducing,” said Shai Agabas, director of economic policy at the Bipartisan Policy Center. “However, it is time for both sides to seriously engage in negotiations.”

He added, “In these times of ongoing inflation and economic anxiety, the last thing the American people need is the clamor for a debt ceiling fight against the wall or, worse, a default on our obligations.”

Wall Street analysts believe that House Republicans will eventually be able to save face and settle on a solution that would “suspend” the debt ceiling for a certain date without raising it to a certain level. The tactic, used by former Speaker John A. Boehner in 2013 and 2014, would give the Treasury Department a chance to keep the government running.

“At the time, unable to get a specific dollar increase in the debt ceiling, Boehner came up with the idea of ​​’stopping’ the debt ceiling by a certain date,” Henrietta Treyz, director of economic policy at Veda Partners, an investment advisory firm, wrote in a note to clients this week. . “It avoided Congress voting on the authorization of a net budget increase and instead gave the Treasury Department the authority to do what needed to be done by a certain date.”

Kristalina Georgieva, managing director of the International Monetary Fund, told reporters on Thursday that she hoped lawmakers would avoid a crisis over the debt ceiling this year.

“Debates about debt limits are always very intense,” Ms Georgieva said. “History teaches us that eventually, a solution is found.”

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