Congress should elevate the credit score restrict by October 18, warns Yellen

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Treasury Secretary Janet Yellen testifies during a Senate Banking, Housing and Urban Development Committee hearing on CARES on September 28, 2021 at the Hart Senate Office Building in Washington, DC, United States.

Kevin Dietsch | Reuters

Treasury Secretary Janet Yellen told House Speaker Nancy Pelosi on Tuesday that Congress had just under three weeks to address the looming debt ceiling and avoid an almost certain economic disaster.

“We now anticipate that the Treasury Department is likely to exhaust its extraordinary measures if Congress fails to act to raise or suspend the debt ceiling by October 18,” she wrote in a letter. “At this point we assume that the Treasury Department would have very limited resources that would be used up quickly.”

Yellen, who will testify before the Senate later Tuesday morning, warned lawmakers in a separate statement that failure to suspend or raise the debt limit would result in the first U.S. default and have serious repercussions for the U.S. economy.

“It is imperative that Congress swiftly address the debt ceiling. If it does not, America would be insolvent for the first time in history,” she said in her remarks to the Senate Banking Committee. “The full confidence and creditworthiness of the United States would be compromised and our country would likely face a financial crisis and economic recession.”

Senate minority leader Mitch McConnell, R-Ky., Later on Tuesday blocked Schumer’s motion that would allow Democrats to tackle the debt ceiling by a simple majority. It needed unanimous support.

The move would have allowed Democrats to bypass a Republican filibuster and suspend or raise the cap without a GOP vote.

Since the US has never defaulted on its debt before, economists must rely on projections and guesswork when trying to gauge the economic consequences of default. Still, most economists say that such a default would lead to a financial disaster that could trigger a widespread market sell-off and economic downturn amid a rise in interest rates.

“You would expect interest rates to rise if the debt ceiling wasn’t raised,” Yellen said during a live statement Tuesday. “I think there would be a financial crisis and a calamity. Absolutely, it is true that interest payments on the national debt would increase.”

Yellen’s letter to Pelosi, D-California, is the latest in a series of communications between the Treasury Secretary and the Congressional leadership as the US is on the verge of missing a payment to its debtors. A House spokesman did not respond to a request for comment.

Pelosi and the Senate Majority Leader, Chuck Schumer, DN.Y. have called on Republicans in recent weeks to pass a suspension of the debt ceiling as a bipartisan obligation.

“Now that minority leaders McCarthy and McConnell embrace a disaster they both know is coming, Republican luminaries, former Treasury officers, business groups and top economists are joining the growing chorus of Americans calling for them to stop to put politics above US health. ” Economy, “Pelosi’s office said last week before Yellen’s latest letter.

Senate Republicans on Monday blocked a bill that would fund the government and suspend the US debt ceiling. The GOP opposed the House-approved bill because it included a provision to suspend the debt ceiling, a task that Republicans believed should be the Democrats’ sole responsibility.

McConnell responded to Yellen’s final warning to Congress late Tuesday morning.

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“If Democrats want to ram trillions more trillions more into inflationary socialism with quick, party-line procedures, they must use the same tools to deal with the debt ceiling,” he said from the Senate.

“It is time our Democratic counterparts were no longer on their heels and moved,” added the Republican leader. “But the Democrats in Congress do not seem to act urgently.”

Republicans want the Democrats to raise or suspend the debt ceiling by adding a provision to their $ 3.5 trillion Atonement Act.

Government funding and the debt ceiling are separate issues.

The US government will shut down in late September if lawmakers don’t approve a new funding or grant bill. In this case, government agencies will have to send thousands of federal employees home and work with limited capacity until funding resumes.

The debt ceiling is seen as the greater economic threat, as failure to suspend or raise the US debt ceiling would result in an initial default and undreamt-of economic devastation.

Raising or suspending the debt ceiling does not authorize new federal spending, but allows the Treasury Department to pay off debts already incurred during the Trump and Biden administrations. Even if the Biden government hadn’t passed any new spending initiatives in 2021, lawmakers would still have to raise or suspend the cap.

Republicans approved three such debt caps or suspensions during the Trump administration, under which national debt rose by around $ 8 trillion.

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