Yellen calls for the abolition of the “very destructive” debt ceiling
secretary of the treasury Janet YellenJanet Louise Yellen On the money – Democrats set up a chaotic end of the year said on Thursday she supported the abolition of the federal debt limit, calling it a “very destructive” threat to the full faith and credit of the United States
In testimony to Congress, Yellen argued that it made no sense to limit the Treasury’s ability to pay bills already approved by Congress and the President with an arbitrary cap on the amount of debt it can issue.
“When Congress makes spending laws and puts in place a tax policy that determines taxes, those are the crucial decisions Congress makes,” Yellen said at a hearing before the House Financial Services Committee, where she appeared alongside Federal Reserve Chairman Jerome Powell.
“And, if in order to fund these spending and tax decisions it is necessary to issue additional debt, I think that is very destructive for the president and myself, the secretary of the treasury, in the situation where we could being unable to pay the resulting bills past decisions.
Yellen’s call to abolish the debt limit comes about three weeks before the Treasury Department was on track to run out of cash and extraordinary measures to avoid a default on the national debt. She told lawmakers on Tuesday that the United States was on track to default by October 18 without action to raise the debt ceiling.
Republicans have pledged to block any bill that would raise the debt ceiling despite being suspended three times under the former President TrumpDonald Trump Pennsylvania Attorney General Josh Shapiro enters race for governor GOP lawmakers introduce measure in support of Columbus Day subpoena Bannon sets big decision for Biden DOJ MORE, insisting that Democrats must do it themselves as part of the budget reconciliation process. Democrats, for their part, lambasted Republicans for refusing to support a measure that would allow the Treasury to repay debt accumulated over several decades and under both parties.
Raising the debt ceiling does not directly affect the amount of the national debt or the future spending of Congress. It just allows the treasury to generate more cash to cover expenses already approved by lawmakers and the president by selling bonds. The debt ceiling will also need to be raised regardless of future congressional spending, as federal revenues will not arrive quickly enough for the government to pay the bills when they fall due.
“It should be bipartisan in recognition of the fact that Republican and Democratic administrations and congresses have run budget deficits for most of the post-election years.[World War II] period with only a few years serving as an exception, ”Yellen said.
“This requires regularly raising the debt ceiling,” she continued. “The need to do this has nothing to do with future spending or tax plans.
Even so, Republicans have insisted that Democrats are solely responsible for raising the debt ceiling as they attempt to spend billions more on Biden’s broad economic agenda.
“As of Jan. 20, the approach of this Congress is that they don’t need Republican votes to do anything. That’s the approach, and now they want political coverage in the midst of this huge amount of new spending, ”said Rep. Patrick mchenryPatrick Timothy McHenryYellen calls for end to ‘very destructive’ debt limit Biden appeals to major bank skeptical for senior regulatory post Lawmakers introduce bill to create commemorative coins to honor working dogs MORE (NC), the Republican ranking on the financial services panel.
McHenry also slammed Yellen for only asking for his vote in a phone call last week, instead of months earlier when Republicans first warned they would not raise the debt ceiling .
“I’ve been part of the solution for a decade, and the call I got from you last week was the first contact I had from this administration to do something on a bipartisan basis,” said McHenry, referring to his previous votes to raise the debt ceiling.
“I am grateful for the awareness on your part, but this speaks of a larger problem for the administration,” he continued.
Yellen countered that Democrats helped Republican lawmakers pass a debt ceiling increase in 2017, even though the GOP was forecasting a $ 1.9 trillion tax cut they passed through budget reconciliation. , the same process Democrats plan to use for multibillion-dollar social services and Biden’s climate bill. .
Democratic lawmakers have also torn Republicans apart for linking their drive to maintain the country’s creditworthiness to political concerns.
“I have been here for 22 years,” said Rep. Gregory MeeksGregory Weldon MeeksUS faces daunting task in relation to Haiti Overnight Defense & National Security – China steps up White House clatter warns China MORE (DN.Y.), “And every time, when it came to the merit of the United States and our economy, I didn’t care whether or not the administration was Democrat or Republican, or someone called me to ask for my vote.
While both sides have historically used the debt ceiling to gain spending concessions from the other side, recent deadlocks over the limit have done nothing to reduce the size of the national debt.
Financial and economic experts also say that a default on the national debt could be catastrophic for both the US economy and the global financial system given the global reliance on the US dollar and Treasury bonds as the basis of trade. international.
The ineffectiveness of the debt ceiling as a tax control and the high stakes of its exceeding have prompted both liberals and conservatives to call for its abolition or reform. Yellen added that with effectively negative interest rates, the United States has no economic reason to prioritize debt reduction over maintaining the country’s solvency.
Powell, a Republican who urged lawmakers to reduce debt ahead of the pandemic, did not say whether the debt ceiling should be eliminated, but broadly agreed with Yellen’s call for a swift resolution of the ‘dead end.
“If we breached our obligations, no one should assume that the Fed or anyone else can fully protect the American people from the consequences,” said Powell.
Update at 1:10 p.m.