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The Treasury secretary, testifying alongside Jerome H. Powell, the Federal Reserve chair, implored Congress to raise or suspend the nation’s borrowing cap before an Oct. 18 deadline.
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Failure to Raise Debt Limit Would be ‘Catastrophic,’ Yellen Says
Treasury Secretary Janet L. Yellen warned lawmakers that if Congress did not raise or suspend the statutory debt limit by Oct. 18, the country would default for the first time in history, prompting a “self-inflicted” financial crisis.
It is imperative that Congress address the debt limit, if not, our current estimate is the Treasury will likely exhaust its extraordinary measures by Oct. 18. At that point, we expect Treasury would be left with very limited resources that would be depleted quickly — America would default for the first time in history. The full faith and credit of the United States would be impaired, and our country would likely face a financial crisis and economic recession as a result. It’s necessary to avert a catastrophic event for our economy. Senators, the debt ceiling has been raised or suspended 78 times since 1960, almost always on a bipartisan basis. My hope is that we can work together to do so again, and to build a stronger American economy for future generations. Absolutely, it’s true that the interest payments on the government debt would increase. I would be concerned that the dollar and Treasury assets, which are regarded as the most secure in the world and serve as the basis for the dollar to be the reserve currency that it would undermine confidence in. the dollar as a reserve currency, and the interest payments of ordinary Americans on their mortgages and on their cars and on their credit cards would all go up in line with higher Treasury borrowing costs. This would be a manufactured crisis we had imposed on this country which has been going through a very difficult period, is on the road to recovery, and it would be a self-inflicted wound of enormous proportions.
By Alan Rappeport,Emily Cochrane and Jeanna Smialek
WASHINGTON — Treasury Secretary Janet L. Yellen warned lawmakers on Tuesday of “catastrophic” consequences if Congress failed to raise or suspend the statutory debt limit in less than three weeks, saying inaction could lead to a self-inflicted economic recession and a financial crisis.
At a Senate Banking Committee hearing where she testified alongside the Federal Reserve chair, Jerome H. Powell, Ms. Yellen laid out in explicit terms what she expects to happen if Congress does not deal with the debt limit before Oct. 18, which the Treasury now believes is when the United States will actually face default. In her most public expression of alarm about the matter, she described the standoff within Congress as a self-inflicted wound of enormous proportions.
Her warnings came as the stock market suffered its worst day since May, as investors fretted over a co*cktail of concerns, including the potential for the government to shut down and default on its debt, persistent inflation, the Delta variant and the Fed’s plans to soon withdraw some economic support. The S&P 500 fell 2 percent and yields on government bonds spiked to their highest level since June, reflecting expectations that the Fed will begin to slow its bond purchases as prices rise and the economy heals.
Congress was scrambling to figure out how to resolve its two immediate problems: funding the government past Thursday and raising the debt limit so that the United States can continue borrowing money to pay its bills.
After Senate Republicans on Monday blocked an emergency spending bill that would have funded the government through early December and lifted the debt limit, Democrats huddled privately to discuss their options but have not settled on a solution.
In a phone call on Monday, Democratic congressional leaders spoke with President Biden about the possibility of steering around Republican opposition and raising the debt ceiling unilaterally. They could do so by using a fast-track process known as reconciliation that shields fiscal legislation from a filibuster — the same maneuver they are employing to push through their sprawling social policy and climate change bill. But Democrats have publicly resisted that option, which would be complex and time-consuming, and would most likely force them to cast a series of politically tricky votes on an array of issues.
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