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Six former Treasury secretaries urge Congress to move swiftly


Raindrops are illuminated by a camera flash, as the Hurricane Ida passes over the region, at the U.S. Capitol in Washington, September 1, 2021.

Reuters Six former Treasury secretaries on Wednesday urged Congress to take quick action to raise or suspend the U.S. debt ceiling or else risk “serious economic and national security harm.”| Reuters

Six former Treasury secretaries on Wednesday urged Congress to take quick action to raise or suspend the U.S. debt ceiling or else risk “serious economic and national security harm.”

Some of America’s most respected economists have warned that failure to raise or suspend the U.S. debt ceiling could lead to another downturn in the economy.

According to the Treasury Department, they are likely to have sufficient cash in hand to pay all government bills by October but do not have a drop-dead date.

Henry Paulson (ex-Treasury secretary), Timothy Geithner and Larry Summers were among the people who told Nancy Pelosi, D.Calif. that they could have enough cash to pay for government bills through October, but did not give a specific date.

They wrote that they were former Treasury secretaries and wanted to convey their deep concern about the need for Congress to quickly initiate and finish a feasible legislative process to increase the debt limit.

According to the group, even a temporary default could harm economic growth. This could cause turmoil in markets and sap economic confidence. It would also prevent Americans from accessing vital services. It is very harmful to reduce trust in the United States full faith and credit, which would prove difficult to fix.

Although the House speaker was not addressed by prior secretaries, the House GOP leader Kevin McCarthy, R.-Calif. and Senate Majority Leader Chuck Schumer D-N.Y. were copies. Mitch McConnell is the Republican from Kentucky.

CNBC did not receive a response from Steven Mnuchin the former Treasury Secretary, who was under Donald Trump. CNBC’s request for comment was not met by the Treasury Department.

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Raising or suspending the debt ceiling does not authorize new spending. It’s more similar to increasing the credit limit of a credit card. This allows the Treasury Department the ability to repay the nation’s previous legislation.

“Even if the Biden administration hadn’t authorized any spending, we would still need to address the debt ceiling now,” current Treasury Secretary Janet Yellen wrote in a Wall Street Journal op-ed over the weekend.

She wrote that there is no reason for such an outcome and she was not referring to fiscal responsibility as the main reason. A default “likely would precipitate an historic financial crisis which would add to the public health emergency”. A default could cause a sharp drop in stock prices, an increase in interest rates and financial chaos.

Yellen also wrote numerous letters to Congress urging them to quickly pass a suspension of interest rates or an increase.

Wall Street economists have been warning for weeks about the danger of default or the possibility of default. They warn that Americans could be hit hard by higher borrowing costs and an increase in economic activity.

Goldman Sachs economists told clients in a note published last week that the current debt ceiling gridlock seems as risky as the 2011 standoff that led Standard & Poor’s to lower its rating on U.S. sovereign debt.

Even though the warnings are dire, legislators have yet to find a way to increase the country’s borrowing limit.

On Tuesday, the House Democrats passed a bill to prevent the government from shutting down at the end the month and also suspend the debt limit. Republicans, however, have said they will not help Democrats raise the borrowing limit to protest the proposed trillions in spending by the Biden government.

The House approved Tuesday’s bill with a 220-211 vote. It was supported by all Democrats, while it was opposed by every Republican. It is possible that the GOP will resent the bill in the Senate. The party holds the power to stop the measure.

Democrats could be forced to search for another solution to avoid an historic default and federal funding being lapsed. Investors blamed the increasing fears of a default for a market sell-off on Monday, when the Dow Jones Industrial Average fell more than 600 points.