Treasury Secretary: US Will Hit Debt Ceiling on Thursday | Janet Yellen

Janet Yellen, the US Treasury Secretary, has notified Congress that the US must reach its debt limit by Thursday, January 19th, and will then resort to “extraordinary measures” to avoid default.

In a letter to House and Senate leaders on Friday, Yellen said her actions will buy time until Congress passes legislation that will either increase the country’s $31.4 trillion lending authority or suspend it again for a period of time. period of time.

She urged lawmakers to act quickly to raise the debt ceiling to “protect the full faith and credit of the United States.”

“Failure to fulfill government obligations would cause irreparable damage to the United States economy, the livelihoods of all Americans, and global financial stability,” she said.

Republicans now in control of the House have threatened to use the debt ceiling as leverage to demand spending cuts from Democrats and the Biden administration. That has raised concerns in Washington and on Wall Street about a bruising fight over the debt ceiling this year that could be at least as disruptive as the protracted battle in 2011 that led to the brief downgrade of the US credit rating and years of domestic violence. and cuts in military spending.

The Washington Post reported late on Friday that House Republicans have prepared an emergency plan to break the debt limit. The proposal, which was in the preliminary writing stages, would guide the Treasury Department to prioritize certain payments if the US reached the debt ceiling, according to the newspaper.

The White House said on Friday, following Yellen’s letter, that it would not negotiate raising the debt ceiling.

“This must be done without conditions,” White House spokeswoman Karine Jean-Pierre told reporters. “There will be no negotiation on this.”

New House Speaker 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 put any fiscal problems in our economy and we won’t, but the fiscal problems would continue to do business as usual,” he said.

“We need to change the way we spend money.”

The House Republicans’ proposal reported by the Washington Post would require the Biden administration to make only the most critical federal payments if the treasury department runs into the statutory limit on what it can legally borrow. The plan will require the department to continue paying interest on the debt, the newspaper reported, citing sources.

The House Republicans’ pay-prioritization plan may also stipulate that the Treasury Department continue to make payments for Social Security, Medicare and veterans’ benefits, in addition to funding the military, the paper added.

Yellen said that while Treasury cannot estimate how long the extraordinary measures will allow the US to continue to pay government obligations, “it is unlikely that the money and extraordinary measures will run out before the beginning of June.”

The Treasury Department first used extraordinary measures in 1985 and at least 16 times since then, according to the Committee for a Responsible Federal Budget, a watchdog body. These measures include divesting some payments, such as contributions to federal employees’ retirement plans, in order to provide some space to make other payments deemed essential.

Previous forecasts suggest that a default could instantly bury the country in a deep recession, right at a time of slowing global growth, as the US and much of the world grapple with high inflation because of the pandemic and Russia’s invasion of Ukraine. Financial markets could crash and several million workers could be laid off, and the aftershocks would be felt for years.

Shai Akabas, director of economic policy at the Bipartisan Policy Center, told reporters on Friday: “This is not the time to panic, but it is certainly a time for policymakers to enter into serious negotiations.”

“Most policy makers agree that we have a big fiscal challenge as a country, our debt is unsustainable,” he said. “There is no reason why we cannot agree on measures to improve our fiscal bottom line and also ensure that we are paying all of our bills in full and on time.”

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