The federal government might run out of money and go into default in August unless Congress raises the debt ceiling, Biden Treasury Secretary Janet Yellen has warned.
Speaking before a Senate appropriations subcommittee hearing this week and discussing the Treasury’s budget, Yellen stressed that “defaulting on the national debt should be regarded as unthinkable,” and said that “failing to increase the debt limit would have absolutely catastrophic economic consequences.”
In her words, these consequences would include the precipitation of a financial crisis, and threaten jobs and savings at a time when the US is still recovering from the economic fallout caused by the coronavirus.
The economist indicated that the current suspension of the debt ceiling, agreed to by Congress in 2019, is set to run out on 31 July, and that unless it is raised and/or suspended again, the federal government will not be able to borrow money to cover expenses, including interest payments on debt.
“It’s possible we could reach that point while Congress is out in August, and I would really urge prompt action on raising the limit or suspending it,” Yellen said, referring to Congress’s traditional summer recess, which runs the entire month of August and half of September.
In the past, Democrats and Republicans have sometimes used the debt ceiling issue as a means to pressure one another to push through policies favouring one or the other party’s priorities. A 2011 play by Republicans to link their agreement for a higher debt limit prompted stock prices to fall, and caused the Standard & Poor’s international rating agency to downgrade the US from its AAA debt rating to AA+.
In recent months, GOP lawmakers have been aggressively searching for ways to slash away at what they perceive to be the Democrats’ liberal spendthrift agenda, forcing the president’s party to cut back on his signature multitrillion-dollar infrastructure bill, and causing other sweeping initiatives on issues including gun control, police reform and elections to get bogged down.