Treasury Department Secretary Janet Yellen warned Tuesday that “time is running out” for Congress to lift the debt ceiling and avert a default on the nation’s debt, which the secretary says would be catastrophic for the economy.
“Time is running out. Every single day that Congress does not act, we are experiencing increased economic costs that could slow down the U.S. economy,” Yellen said in remarks to the Independent Community Bankers of America.
Yellen’s department has warned that its ability to stave off a default using extraordinary measures could run out by June 1 unless Congress takes action, and the White House has been locked in debate with lawmakers on how to address the looming deadline.
“Our current best estimate underscores the urgency of this moment: It is essential that Congress act as soon as possible. In my assessment — and that of economists across the board — a U.S. default would generate an economic and financial catastrophe,” Yellen said.
More coverage of the debt ceiling from The Hill:
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- Biden, McCarthy, other congressional leaders set for Tuesday meeting
- GOP senators dismiss Trump’s calls for a default
- LAST WEEK: Takeaways from initial White House debt ceiling meeting
The community and regional bankers in Yellen’s audience Tuesday would be among those hit hard by the potential financial crisis.
A default would reverse the country’s economic progress and put the economy in the middle of an “unprecedented economic and financial storm,” likely leading to a loss of income and sparking a recession, Yellen argued. Services such as air traffic control, law enforcement, border security and national defense, all reliant on federal employees and contractors, could also be disrupted.
President Biden and Speaker Kevin McCarthy (R-Calif.) are expected to meet again Tuesday to talk about a possible deal to raise the borrowing limit.
Republicans have been pushing for a debt ceiling increase that’s tied to spending cuts, while the White House is advocating for a “clean” hike. Biden has also reportedly considered using the 14th Amendment to raise the ceiling on his own, as a possible last-ditch move if Congress doesn’t act.
“The U.S. Treasury market serves as the very bedrock of the global financial system. There’s a reason for that: The world has never doubted that America will pay the principal and interest on its bonds, in full and on time. … A default would crack open the foundations upon which our financial system is built,” Yellen said Tuesday, warning of “worldwide panic triggering margin calls, runs, and fire sales.”
“Let me be clear: If Congress does not address the debt limit, there are no good options that Treasury or the government can use to save us from catastrophe,” Yellen said.
“Generations of Americans have protected the full faith and credit of the United States. That has been a bedrock of our global economic leadership. There is no good reason to squander that reputation now — and to trigger a manufactured crisis of our own creation.”