Treasury Secretary Janet Yellen urged Congress Wednesday to address the debt ceiling immediately, in order to keep the U.S. from defaulting on its financial obligations.
In 2019, President Trump suspended the nation’s borrowing limit for two years, until after the 2020 elections, and that suspension will expire on July 31, setting off a likely battle in Congress over spending.
“I would plead with Congress simply to protect to full faith and credit of the United States by acting to raise or suspend the debt limit as soon as possible,” Yellen said.
Yellen’s remarks came in testimony before a Senate subcommittee about the Biden administration’s proposed 2022 fiscal year budget. She warned that not raising or suspending the debt limit and allowing the country to default could lead to a financial crisis that would threaten the jobs and savings of Americans who are still recovering from the coronavirus pandemic.
“Defaulting on the national debt should be regarded as unthinkable. Failing to increase the debt limit would have absolutely catastrophic economic consequences,” Yellen said. “It would be utterly unprecedented in American history for the United States government to default on its legal obligations.”
Yellen reminded lawmakers that their move to raise or suspend the debt ceiling wouldn’t authorize additional spending, but allow the U.S. to continue paying its bills for its prior obligations, money already spent.
This comes after the Treasury Department said early last month it would employ so-called extraordinary measures to avoid defaulting on the national debt this summer, but it was uncertain how long those would last, due to the uncertainty caused by the pandemic.
“Treasury is evaluating a range of potential scenarios, including some in which extraordinary measures could be exhausted much more quickly than in prior debt limit episodes,” Deputy Assistant Secretary for Federal Finance Brian Smith said on May 5 in a statement.
When asked Wednesday about the duration of the measures, Yellen replied the timeline is always being refined, and she did not give a specific date. She did say that the government could reach that point while Congress is out for August recess if action is not taken sooner. Any chance of defaulting on the government debt, Yellen told lawmakers, could not be tolerated. Congress has only a few days in session before it leaves for a two-week district work period encompassing July 4.
And lawmakers are already gridlocked over several pieces of legislation. The administration called for trillions in new spending as the country emerges from the pandemic while Republican lawmakers have balked at the proposals, raising alarms about the national debt, which is currently over $28.4 trillion.
The debt ceiling was raised or suspended several times under former President Trump, in addition to his 2019 suspension. When he first took office, the national debt was over $19 trillion and more than $27 trillion by the time he left office.
When asked about the looming debt ceiling fight on Monday, White House press secretary Jen Psaki said the president believes Congress should raise it as it did when Mr. Trump was president.