Yellen told Congress that the US national debt limit is expected to be reached on Thursday

WASHINGTON – Treasury Secretary Janet Yellen notified Congress on Friday that the US is expected to hit its debt limit on Thursday and then resort to “extraordinary measures” to avoid a default.

In a letter to House and Senate leaders, Yellen said her actions would buy time until Congress passed legislation that would either increase the country’s borrowing power by $31.4 trillion or suspend it again for a period of time. But she said that “it is imperative that Congress act in a timely manner.”

“Failure from government commitments will cause irreparable damage to the US economy, the livelihoods of all Americans, and global financial stability,” she said.

“In the past, even threats that the US government might default have done real harm, including the only credit downgrade in our country’s history in 2011,” she said. Yellen was referring to the impasse on the debt ceiling during the presidency of Barack Obama, when the Republicans also just won a majority in the House of Representatives.

In this new Congress, the debt ceiling debate will almost certainly spark a political showdown between newly empowered GOP lawmakers who now control the House of Representatives and want to cut spending, and President Joe Biden and Democratic lawmakers who have enjoyed one-party control of Washington for the past two years. of the year.

The White House insisted that it would not allow the nation’s credit to be held hostage by the demands of GOP lawmakers.

“We have seen Republicans and Democrats come together to resolve this issue,” White House spokeswoman Karine Jean-Pierre told reporters Friday. ”

House Republican leaders have compared the debt ceiling to a credit card limit and have said they will only raise the statutory ceiling if it also secures a spending review.

Speaker of the new House of Representatives, Kevin McCarthy, told reporters at his first press conference that he had a “very good conversation” with Biden about the upcoming debt ceiling debate. “We don’t want to create any fiscal problems for our economy, and we won’t, but fiscal problems will continue to drive business as usual,” he said.

“We have to change how we spend money.”

McCarthy proposed a budget cap deal that was crafted in the Trump administration’s latest debt ceiling bypass that would cap federal spending levels in exchange for House votes needed to raise the debt ceiling.

But any attempt to compromise with Republicans in the House of Representatives could force Biden to abandon his own priorities, whether it’s money for the IRS to ensure richer Americans pay back what they owe or domestic programs for children and the poor.

Senate Majority Leader Chuck Schumer and new House Democratic Leader Hakim Jeffreys said in a joint statement Friday that “a default spurred by extreme MAGA Republicans could plunge the country into a deep recession and further increase the cost to America’s working families of everything from mortgages to auto loans to credit card interest rates.”

They said the two parties worked together to triple the debt limit when Trump was president and Republicans had majorities in the House and Senate. “This time it should not be different,” the Democratic leaders said.

Yellen said that while the Treasury Department cannot estimate how long the emergency measures will allow the US to continue paying the government’s obligations, “it is unlikely that the cash and emergency measures will be exhausted before early June.”

Shai Akabas, director of economic policy for the Center for Bipartisan Policy, told reporters on Friday that “now is not the time to panic, but it is certainly the time for politicians to start negotiations in earnest.”

“Most politicians agree that we have a serious fiscal problem as a country, our debt is unsustainable,” he said, and “there is no reason why we couldn’t agree on measures to improve our fiscal performance as well as ensure that we pay all of our bills in full and on time.”

The Treasury first applied emergency measures in 1985 and has since applied them at least 16 times, according to the Committee for a Responsible Federal Budget, the financial oversight body.

These measures include waiving certain payments, such as contributions to federal employee pension plans, to provide some headroom to make other payments deemed necessary, including for Social Security and debt obligations.

Previous forecasts suggest that a default could instantly plunge the country into a deep recession, just as global growth slows, as the US and much of the world face high inflation due to the pandemic and Russia’s invasion of Ukraine. Financial markets could collapse and several million workers could be laid off.

The tremors were felt for years. Moody’s Analytics called the risk “catastrophic” in its 2021 outlook prior to the previous debt ceiling hike, suggesting that the ensuing chaos would be caused by government dysfunction rather than the underlying health of the US economy.