Congress Warned of ‘Critical’ Need to Raise Debt Ceiling to Avoid Dire Scenario Triggered by Default

Last month Congress raised the US debt limit into December amid warnings from the Treasury Secretary that failure to do so might cause the nation to default on its $28+ trillion in debt. Regardless, the White House has continued to push forward with trillions in spending, such as the $1.2 trillion infrastructure bill signed into law by Joe Biden.

Treasury Secretary Janet Yellen has warned lawmakers in Congress to lift or suspend the nation’s borrowing cap to deter a potentially catastrophic default.

In a letter addressed to House Speaker Nancy Pelosi, D-Calif., Yellen said she now estimates that the nation will reach its debt limit on 15 December, almost two weeks later than her initial forecast of 3 December.

Clarifying that the revised estimate is in prompted by President Joe Biden’s signing into law of the $1 trillion infrastructure plan earlier this week, the Treasury Secretary suggested the additional 12 days could offer Congress much-needed additional time to strike a deal on the debt ceiling.

“While I have a high degree of confidence that Treasury will be able to finance the US government through December 15 and complete the Highway Trust Fund investment, there are scenarios in which Treasury would be left with insufficient remaining resources to continue to finance the operations of the US government beyond this date,” wrote Yellen.

If lawmakers fail to achieve a settlement regarding the borrowing cap before the so-called “drop-dead date”, the US government would default.

Congress raised the statutory debt limit by $480 billion in a stopgap measure in early October. While Republicans reluctantly joined Democrats in approving the short-term fix, they have insisted that the President and his party vote on their own to approve a longer-term suspension or lifting of the debt limit.

According to Yellen, while that Democrats could resolve the debt limit issue without Republican support, resorting to the budgetary procedure called reconciliation, doing so on a bipartisan basis would be preferable.

Federal Reserve Chair Janet Yellen

© AP Photo / Manuel Balce Ceneta

Yellen warned that a default would trigger a recession, while also jeopardising the US dollar’s role as the globe’s reserve currency. In her letter to Congress, Yellen referenced the newly-enacted Infrastructure Bill, that would require $118 billion be transferred into the Highway Trust Fund within one month of being signed into law.

“Promptly thereafter, the funds will be invested in nonmarketable Treasury securities subject to the debt limit,” wrote Yellen, underscoring that it was “critical that Congress raise or suspend the debt limit as soon as possible”. Janet Yellen concluded by promising to continue to update Congress “as more information becomes available”.

U.S. President Joe Biden celebrates with lawmakers including ‪House Speaker Nancy Pelosi (D-CA) before signing the Infrastructure Investment and Jobs Act on the South Lawn at the White House in Washington, U.S. November 15, 2021.

© REUTERS / JONATHAN ERNST

On 15 November President Joe Biden signed a $1.2 trillion infrastructure bill that Republicans and other critics have lambasted as rife with wasteful spending, and fraught with contributing to the already-rampant inflation that will further stifle the US economic recovery and lower the standard of living.

Biden, who touted his infrastructure bill as a victory for "ordinary people" as he spoke on the NH 175 bridge in Woodstock, New Hampshire, expressed confidence his Build Back Better bill - the next item on the congressional agenda, was going to pass the House and then go to the Senate.

“I think we'll get it passed within a week as fully paid for. It'll reduce the deficit over the long term, as I said, and again, no one making less than 400 grand owes a single penny more in federal taxes,” he said.