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Treasury Secretary Janet Yellen said on Tuesday she believed the economy would go into recession if Congress failed to settle the borrowing limit before an unprecedented default on US debt.
“I see October 18 as a deadline. It would be catastrophic not to pay the government bills because we wouldn’t have the resources to pay the government bills,” Yellen said in an interview with ” Squawk Box “. .
President Joe Biden on Monday called on Congress to raise the debt ceiling this week and avoid even approaching a near-certain economic crisis. He blamed Republicans and Senate Minority Leader Mitch McConnell, R-Ky., For blocking legislation that would raise the borrowing limit through obstruction.
“I expect that will also cause a recession,” Yellen added on Tuesday.
The Treasury Secretary for weeks warned House Speaker Nancy Pelosi, D-Calif., And Senate Majority Leader Chuck Schumer, DN.Y., that the United States would no longer be able to honor their debts around October 18. Lawmakers must raise or suspend the debt ceiling before then or risk the very first US default.
The Treasury Department is currently using “extraordinary measures” called emergency to repay US revenues since the last debt ceiling reached in late July. Exceptional measures allow the ministry to both conserve cash and draw on certain accounts without issuing new bonds.
But these measures are temporary and should only last until mid-October, according to Treasury estimates.
While the United States has never failed to pay its bills, economists say a default would cause widespread damage through rising interest rates, tarnished confidence in Washington’s ability to meet its obligations future on time and potentially delay Social Security checks to some 50 million seniors. .
Members of the United States armed forces could also see their wages delayed due to a United States default.
Inaction could also cause some countries to hold fewer Treasuries and weaken demand for the dollar, which could give China an edge in its attempt to replace the greenback as the world’s preferred currency.
“US Treasury securities have long been considered the safest asset on the planet,” Yellen said. “That partly explains the dollar’s reserve status. And to question that by not paying any of our overdue bills would truly be a catastrophic result.”
Lawmakers on both sides of the political aisle recognize that the debt ceiling must be raised or risk economic upheaval. But the two parties seemed far from a compromise as of Tuesday morning.
Where Republicans and Democrats disagree is on how to raise the borrowing limit, each using the question as a political bludgeon.
Republicans, who are fed up with what they see as the Democrats’ overspending plans, say Biden, Pelosi and Schumer should single-handedly solve the problem by suspending their social policy and climate reconciliation bill of several billion dollars.
Reconciliation allows a party to pass certain bills with a simple majority in the Senate over the usual 60-vote requirement, making it immune to GOP obstruction. McConnell has made it clear that no member of his caucus will support efforts to raise the cap ahead of the 2022 midterm election.
“Since mid-July, Republicans have made it clear that Democrats will have to raise the debt ceiling themselves,” McConnell wrote to Biden on Monday. “Two-party politics is not a switch that President Pelosi and Chief Schumer can turn on to borrow money and turn it off to spend it.”
“For two and a half months, we have simply warned that since your party wishes to govern alone, it must also manage the debt ceiling alone,” he added, referring to the reconciliation effort.
If Republicans maintain their threat, Democrats may ultimately be forced to include a ceiling suspension in their reconciliation bill.
That would be a tall order, as many party members say the massive bill is still weeks away from being ready and in the midst of efforts to scale back the plan to appease the moderate Senses. Joe Manchin, DW.Va., and Kyrsten Sinema, D- Arizona
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