Congress must raise the debt limit by Oct. 18, Yellen warns
U.S. Treasury Secretary Janet Yellen testifies before the Senate Appropriations Subcommittee on Financial Services about the FY22 Treasury budget request on Capitol Hill in Washington, DC, June 23, 2021.
Greg Nash | Pool | Reuters
Treasury Secretary Janet Yellen on Tuesday told House Speaker Nancy Pelosi that Congress has just under three weeks to address the looming debt ceiling and avoid near-certain economic calamity.
“We now estimate that Treasury is likely to exhaust its extraordinary measures if Congress has not acted to raise or suspend the debt limit by October 18,” she wrote in a letter. “At that point, we expect Treasury would be left with very limited resources that would be depleted quickly.”
Yellen, who will testify before the Senate later Tuesday morning, warned in a separate statement to lawmakers that failure to suspend or raise the debt limit would lead to the first-ever U.S. default and have severe consequences for the U.S. economy.
“It’s imperative that Congress quickly addresses the issue of the debt limit. In her comments to the Senate Banking Committee, she stated that America will default the first time ever in its history if it doesn’t. The United States’ full faith in its credit would be compromised, leading to a national financial crisis.
Yellen, D.Calif.’s latest letter to Pelosi is part of a series of communications between Treasury secretary and congressional leaders as the U.S. approaches missing a payment due to its debtholders.
Senate Republicans on Monday blocked a bill that would fund the government and suspend the U.S. borrowing limit. Republicans opposed the House’s bill, as it contained a provision that would suspend the debt ceiling. Republicans feel this should only be done by Democrats.
Republicans want Democrats to raise or suspend the debt ceiling by including a provision in their $3.5 trillion reconciliation bill.
The debt ceiling and government funding are two separate topics.
If lawmakers fail to pass a new funding bill or an appropriations bill, the U.S. government is likely to shut down by September’s end. The government agencies would have to return thousands of federal employees and work at reduced capacities until the funding can be restored.
Because the debt ceiling represents the greatest economic risk, failing to raise or suspend the U.S. borrowing limit could result in an unprecedented default that would cause economic havoc and a new round of default.
The Treasury Department believes that Congress will likely be able to make payments on funds it has approved until at least October.
The debt ceiling is not raised or suspended to authorize federal spending. Instead, Treasury can honor any debts it has incurred under the Trump and Biden administrations. Even if no new spending measures were passed by the Biden administration in 2021; lawmakers still would need to increase or suspend the ceiling.