Six former treasury secretaries urge Congress to act quickly

Six former Treasury secretaries on Wednesday urged Congress to take swift action to raise or suspend the US debt ceiling, or risk “serious damage to the economy and national security.”

The warning from some of the nation’s top economists joins a growing chorus of voices from both the public and private sectors who say breaching the borrowing limit could push the fragile US economy into yet another economic downturn.

The Treasury Department estimates they will likely have enough cash on hand to pay government bills up to some point in October, but have yet to come up with a specific “death drop” date.

Former Treasury Secretaries Henry Paulson, Timothy Geithner, Larry Summers, Jack Lew, Robert Rubin and Michael Blumenthal have told House Speaker Nancy Pelosi, D-Calif., That even flirting with a very first American flaw could scare people away the steps.

“As former Secretaries to the Treasury, we write to express our deep sense of urgency that the leaders of Congress, together with the administration and the President, act quickly to initiate and complete a viable legislative process necessary to increase the debt limit, ”they wrote.

“Even a short-lived default could threaten economic growth,” the group added. “This creates a risk of slippage in the markets and of undermining economic confidence, and it would prevent Americans from receiving vital services. It would be very damaging to undermine confidence in the full confidence and credit of the United States. a pity would be hard to repair. “

Although previous secretaries addressed the Speaker of the House, they sent copies to House GOP Leader Kevin McCarthy, R-Calif., Senate Majority Leader Chuck Schumer, DN.Y., and Senate Minority Leader Mitch McConnell, Republican of Kentucky.

Former Treasury Secretary Steven Mnuchin, who served under former President Donald Trump and did not sign the letter, did not immediately respond to CNBC’s request for comment. The Treasury Department declined to comment on the secretaries’ letter.

Raising or suspending the debt ceiling does not authorize new spending. Instead, it looks more like an increase in the credit limit on a credit card and allows the Treasury Department to pay off the country’s debts under previous legislation.

“Even if the Biden administration had not authorized any spending, we would still need to tackle the debt ceiling now,” current Treasury Secretary Janet Yellen wrote in a Wall Street Journal editorial over the weekend. .

“There is no valid reason to invite such an outcome, certainly not fiscal responsibility, the most commonly cited reason,” she wrote. A default “would likely precipitate a historic financial crisis that worsens the damage from the lingering public health emergency. The default could trigger a surge in interest rates, a sharp drop in stock prices and other financial turmoil.”

Yellen also sent several letters to leaders of Congress imploring lawmakers to pass a suspension or increase as soon as possible.

Outside of government officials, Wall Street economists have warned for weeks that a default, or the specter of a default, could hurt ordinary Americans due to higher borrowing costs and a decline in l ‘economic activity.

Goldman Sachs economists told clients in a memo released last week that the current debt ceiling freeze looks as risky as the 2011 stalemate that led Standard & Poor’s to downgrade its US sovereign debt rating. .

Despite the dire warnings, lawmakers still don’t seem close to a solution on how to increase the country’s borrowing limit.

House Democrats on Tuesday passed a bill that would both prevent the government shutting down at the end of the month and suspend the debt ceiling. But Republicans have sworn they won’t help Democrats lift the borrowing limit as a sort of protest against the billions of dollars in new spending proposed by the Biden administration.

The House approved the bill on Tuesday with a vote of 220-211. All Democrats voted for and all Republicans opposed it. This legislation is expected to meet stiff resistance from the GOP in the Senate, where the party has the power to block the measure.

In this case, Democrats should scramble to find another way to avoid a federal funding lapse and a historic default. Investors blamed growing fears of a default for a market sell-off on Monday, when the Dow Jones Industrial Average fell more than 600 points.