Failure to raise debt ceiling would be ‘catastrophic’: US Treasury Secretary
Treasury Secretary Janet Yellen told a congressional panel on Wednesday that failure to raise the federal debt ceiling would have catastrophic consequences that could lead to a financial crisis.
Testifying before a Senate appropriations subcommittee, Yellen said in response to questions that it was important Congress not delay in addressing the debt limit, which has been suspended for the past two years.
This suspension is due to expire on July 31, at which time the limit will revert to the debt level at that time. The debt subject to the limit currently stands at $28.3 trillion. It has risen sharply over the past year as Congress approved billions of dollars in support packages to fight a recession caused by the COVID-19 pandemic.
Sen. Chris Van Hollen, D-Md., asked Yellen what would happen if Congress failed to raise the debt ceiling or suspend it for a while so the government could continue to borrow to meet its obligations, including interest. national debt payments.
Non-payment of these debts would cause the federal government to default on its debt obligations, which has never happened in the history of the United States. A stalemate over raising the debt ceiling in 2011 led to a first-ever downgrade of part of the AAA rating of federal government bonds by ratings agency Standard & Poor’s.
Yellen said a default on the national debt should be considered unthinkable because it would have absolutely catastrophic consequences that could precipitate a financial crisis.
I would simply ask Congress to protect the faith and credit of the United States by dealing with the matter before the July 31 deadline.
The Treasury Department is able to use accounting maneuvers, such as temporary divestment of government retirement accounts, to prevent the government from hitting the debt ceiling. But these measures can only buy a limited time.
Yellen said she could not give an estimate of how long the emergency measures would last. Outside groups have estimated that the Treasury’s emergency measures will likely run out by this fall.
Yellen said it was difficult to make an accurate forecast due to the great uncertainty caused by the pandemic regarding payment flows and revenue collection.
She said the Treasury may reach a point where it will be unable to pay government bills as early as August, when Congress is expected to be away for its summer recess.
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