- Janet Yellen said Treasury was prepared to pay off the country’s bills starting on August 2.
- Mitch McConnell has opposed raising the debt ceiling without political concessions.
- Yellen said that even the threat of a default risked major damage to the US economy.
- See more stories on Insider’s business page.
Treasury Secretary Janet Yellen sent a letter to Congress on Friday urging lawmakers to renew the federal government’s ability to pay off its debt ahead of a major deadline, warning that failing to do so in a timely manner risked major damage for average people and the economic recovery.
Republicans led by Senate Minority Leader Mitch McConnell have balked at raising the debt limit without ensuring spending cuts from Democrats. He suggested earlier this week that Democrats would have to do it on their own with no GOP support.
In the letter, Yellen said the US would hit its statutory debt limit on August 1. The next day, she said, Treasury is prepared to take “certain additional extraordinary measures” to pay the country’s outstanding bills and prevent a default that could ripple through the global economy.
“Failure to meet those obligations would cause irreparable harm to the U.S. economy and the livelihoods of all Americans,” Yellen wrote to House Speaker Nancy Pelosi. She noted that raising the debt ceiling doesn’t prompt more federal spending, it only authorizes the government to pay what it already owes.
Yellen underscored the damage that even the threat of a default could have on the economy. She cited a 2011 showdown between President Barack Obama and House Republicans that led to the first-ever credit downgrade of US debt. Yellen also said it was hard to predict when Treasury would exhaust its ability to pay off the US’s bills on its own.
On Wednesday, the nonpartisan Congressional Budget Office forecast that the department would run out of cash sometime in October or November.
Republican opposition is hardening now that President Joe Biden sits in the White House. In July 2019, Republicans voted to suspend the borrowing limit for two years under President Donald Trump.
A default from the federal government could precipitate a chain reaction of cash shortages, starting with US bondholders including people, businesses, and foreign governments. Democrats insisted this week that they wouldn’t allow the GOP to use the debt ceiling as a political weapon.
“We’ll handle our business,” Sen. Brian Schatz of Hawaii, a cosponsor of a bill to abolish the debt ceiling, told Insider on Wednesday. “This is something the Hill freaks out about every year or so. We will not negotiate over it, we will not concede anything, and we won’t fail to do our job.”
The Biden administration has pushed lawmakers to raise the debt ceiling ahead of the August 2 deadline.
“We certainly expect Congress to act in a bipartisan manner as they did three times under the prior administration to raise the debt limit,” Jen Psaki, the White House press secretary, said on Friday.