Yellen Says Raising Debt Limit Is Only Solution to Avoid Crisis
© Bloomberg. Janet Yellen in Pretoria, South Africa on Jan. 26. Photographer: Waldo Swiegers/Bloomberg
(Bloomberg) — Treasury Secretary Janet Yellen said the only solution to avoid a US default crisis is for Congress to increase the federal debt limit, avoiding engaging with other proposed stopgap measures including short-term extensions or spending cuts.
“It’s overly necessary for Congress to raise the debt limit, and I hope they do so in a timely way before we come to a crisis,” she said in an interview Thursday. “I’m not going to comment on rumors about what they are or are not considering,” she said, referring to a proposal mulled by House Republican leaders to push the federal debt ceiling until Sept. 30.
Democrats and Republicans remain locked in a confrontation over the government’s legal debt limit, with the stability of global financial markets and the US economy hanging in the balance.
Yellen has consistently rejected the idea that Democrats should compromise by allowing spending cuts that Republicans are demanding in return for lifting the ceiling. She’s also dismissed arguments that the Treasury should prepare for technical steps that would minimize the impact of a default, or resort to gimmicks, like minting a $1 trillion coin.
However, President Joe Biden’s administration may not have public opinion on its side. A recent survey conducted by The Harris Poll found 66% of respondents believed Republicans should only increase the ceiling after extracting constraints on future spending from Democrats.
During the 2011 debt-ceiling crisis, the Obama administration considered prioritizing interest payments on debt over other obligations, which became public when transcripts of discussions at the the Federal Reserve’s Open Market Committee on the plan were released five years later.
The Treasury secretary, who was then Fed vice chair, said that plan was never agreed to.
“We do talk about what kinds of things are feasible, but even there, if you look at the FOMC discussion of that, you have no guarantees that would work,” she said.
By law, the federal government’s debt cannot exceed $31.4 trillion — a cap that was reached on Jan. 19. The Treasury has said it can hold out at least through early June by using special account maneuvers, but may default on payment obligations any time after that if the limit isn’t raised.
“I think we feel strongly it will be a calamity not to raise the debt ceiling,” she said.
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