Yellen issues ‘critical’ global economy warning as US to hit debt limit this week

Washington: US Treasury Secretary Janet Yellen has notified Congress the US is projected to reach its debt limit next Thursday and will then resort to “extraordinary measures” to avoid default.

In a letter to House and Senate leaders on Friday, Yellen said her actions would buy time until lawmakers can pass legislation that will either raise the nation’s $US31.4 trillion borrowing authority or suspend it again for a period of time. But she said it was “critical that Congress act in a timely manner.”

“Failure to meet the government’s obligations would cause irreparable harm to the US economy, the livelihoods of all Americans, and global financial stability,” she said.

Warning: US Treasury Secretary Janet Yellen.Credit:AP

“In the past, even threats that the US government might fail to meet its obligations have caused real harms, including the only credit rating downgrade in the history of our nation in 2011,” she said. Yellen was referring to the debt ceiling impasse during Barack Obama’s presidency, when Republicans had also just won a House majority.

In this new Congress, the debt ceiling debate will almost certainly trigger a political showdown between newly empowered Republicans who now control the House and want to cut spending and President Joe Biden and Democrats, who had enjoyed one-party control of Washington for the past two years.

The White House has insisted that it won’t allow the nation’s credit to be held captive to the demands of Republicans.

“We have seen both Republicans and Democrats come together to deal with this issue,” White House spokesperson Karine Jean-Pierre told reporters. “It is one of the basic items that Congress has to deal with and it should be done without conditions.”

The letter from Treasury Secretary Janet Yellen to House Speaker Kevin McCarthy.Credit:AP

House Republican leaders liken the debt ceiling to a credit card limit and have said they would only raise the statutory ceiling if doing so also secured a spending overhaul.

New House Speaker Kevin McCarthy told reporters in his first press conference that he had a “very good conversation” with Biden about the coming debt ceiling debate. “We don’t want to put any fiscal problems to our economy and we won’t, but fiscal problems would be continuing to do business as usual,” he said.

“We’ve got to change the way we are spending money.”

McCarthy has floated the kind of budget-cap deal that was engineered in the last go around on the debt ceiling during the Trump administration, which would involve capping federal spending levels in return for the House votes needed to raise the debt limit.

But any effort to compromise with House Republicans could force Biden to bend on his own priorities, whether that’s money for the Internal Revenue Service (the tax department) to ensure that wealthier Americans pay what they owe or domestic programs for children and the poor.

Senate Majority Leader Chuck Schumer and new House Democratic leader Hakeem Jeffries said in a joint statement that “a default forced by extreme MAGA Republicans could plunge the country into a deep recession and lead to even higher costs for America’s working families on everything from mortgages and car loans to credit card interest rates.”


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