Potential Catastrophic Debt Default Looms in 3 Weeks
Yellen issues stern warning to Congressional Democrats and Republicans. Congress has just three weeks left before the United States is likely to default on its debt.
Janet Yellen, the Treasury Secretary, cautioned legislators in a letter on Tuesday that if Congress does not move swiftly to increase or suspend the debt ceiling, the United States will default on its national debt in three weeks.
Yellen wrote, “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. At that point, we expect Treasury would be left with minimal resources that would be depleted quickly.
“It is uncertain whether we could continue to meet all the nation’s commitments after that date,” she added.
Fighting off such a catastrophe is now entirely in the hands of Ms. Yellen, who is facing the most challenging test she has seen in her eight months as Vice President Biden’s Treasury Secretary.
Vice President Biden chose Ms. Yellen to assist in steering the economy out of the epidemic slump.
She has, however, been forced into a political position as a result of the dysfunction in Congress, where she is attempting to persuade hesitant Republican legislators that their reluctance to raise the debt ceiling — which restricts the government’s capacity to borrow money — would result in a financial catastrophe.
There are few places Ms. Yellen would rather be than in her position, as an economist by training who is now attempting to navigate the turbulent political seas that she prefers to avoid by opposing legislative gamesmanship with economic reasoning.
The Federal Reserve Chair has reached out to senior Democratic and Republican leaders in the last month, including Senator Mitch McConnell of Kentucky, the minority leader, and Representative Kevin Brady of Texas, the top Republican on the Ways and Means Committee.
The economic dangers have been communicated via those conversations. She has warned that the Treasury’s capacity to fend off default is limited and that failing to raise or suspend the debt ceiling by the end of the month would be “catastrophic.”
Republican leaders have been reminded that they have previously shown a willingness to join Democrats in increasing the debt limit. Raising the threshold only enables the United States to fulfill its current obligations and does not authorize additional expenditure.
Republicans have remained defiant in the face of Ms. Yellen’s outreach thus far.