Treasury Secretary Janet Yellen warned Tuesday of a potential “economic catastrophe” if Congress and the White House fail to take action to raise the federal debt ceiling.
“In the longer term, a default would raise the cost of borrowing into perpetuity. Future investments, including public investments, would become substantially more costly,” Yellen told a crowd of local government officials during an otherwise optimistic speech to a gathering of the National Association of Counties.
“Household payments on mortgages, auto loans, and credit cards would rise, and American businesses would see credit markets deteriorate,” she said. “On top of that, it is unlikely that the federal government would be able to issue payments to millions of Americans, including our military families and seniors who rely on Social Security.”
Yellen notified Congress last month that the U.S. Treasury Department has resorted to “extraordinary measures” to avoid default on the nation’s $31.4 trillion borrowing authority. But the extraordinary measures would likely run out - and put the U.S. at risk of default - sometime around early June.
In a Jan. 13 letter to House and Senate leaders, Yellen said her actions will buy time until Congress can pass legislation that will either raise or suspend the limit, but she said it’s “critical that Congress act in a timely manner.”
The debt ceiling debate has triggered a political showdown between GOP lawmakers in control of the House who want to cut spending and President Joe Biden and Democratic lawmakers, who insist on raising the limit without conditions.
Biden and Republican House leader Kevin McCarthy met at the White House this month to discuss the issue. McCarthy told the president he would not raise the debt ceiling without concessions from Democrats.
“No agreement, no promises except we will continue this conversation,” McCarthy told reporters outside the White House after the meeting.
During his State of the Union address last week, Biden chided Republicans over the debt ceiling - suggesting that Republicans want to slash Medicare and Social Security.
Yellen’s comments come ahead of the Congressional Budget Office’s projections to be released Wednesday, which updates the office’s expectation about when Treasury will no longer be able to pay its obligations fully if the debt limit is not raised.
“Let’s not wait until the last minute,” Yellen said. ”I believe it is a basic responsibility of our nation’s leaders to get this done.”
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