Treasury Secretary Janet Yellen and Senate Democrats on Tuesday blasted Republicans for refusing to back a bill that would raise the federal debt limit and allow the government to pay off expenses approved over more than a decade by Congress and presidents from both parties.
Yellen urged Republicans to take responsibility for their role in adding trillions to the national debt and raise the federal borrowing limit to prevent an economic disaster after informing lawmakers that the U.S. is on track to default on Oct. 18, pinning a specific “X-date” for the first time since the debt ceiling was reimposed Aug. 1.
“It would be disastrous for the American economy, global financial market and millions of families and workers whose financial security would be jeopardized by a delay in payments,” Yellen said at the hearing, flanked by Federal Reserve Chairman Jerome Powell.
“Even coming very close to the deadline without raising the debt ceiling can undermine the confidence of financial markets in the creditworthiness of the United States.”
The debt ceiling was suspended for two years through July 31 under a bipartisan budget deal signed by former President Trump in 2019.
Despite raising the debt ceiling three times under Trump, Republicans have insisted that Democrats must raise the federal debt limit on their own. GOP senators on Monday blocked a bill that would have suspended the debt ceiling, saying they will force Democrats to keep the country solvent through the budget reconciliation process, the vehicle for President Biden’s multitrillion-dollar infrastructure and social services bill.
“Our Democratic colleagues do not want the American people to associate this huge spending binge they want to continue on with the debt that will be required in part to pay for it,” said Sen. Pat Toomey (Pa.), the ranking Republican on Senate Banking Committee, on Tuesday.
“And we’re not in favor of either one,” he continued. “I think you’re going to need to use the procedures readily available to you to raise that ceiling, just as you intend to pursue all this, with just a simple majority.”
It could take roughly two weeks for Democrats to go through the committee hearings, markups, procedural votes and negotiations with the Senate parliamentarian necessary to raise the debt ceiling over GOP objections, according to budget experts.
Even so, Democratic leaders say the process may take too long to avert a filibuster and that it’s no sure bet that it would get done before Oct. 18.
“Deficits have been run by both Democratic and Republican administrations. It’s important to recognize that it means paying those deficits is a shared responsibility and it should not be the responsibility of any one party,” Yellen said on Tuesday.
The national debt rose to roughly $28.5 trillion in 2021 before the debt limit was reimposed Aug. 1, thanks in part to trillions spent on economic support and pandemic relief over the past 18 months. The bulk of that debt was run up over more than a decade by both parties, including when Republicans passed a $1.9 trillion tax cut in 2017.
“Every single one of my Republican colleagues who served on this committee last year voted for the CARES Act. Every single one of them voted for the $2 trillion tax cut for their wealthy friends. They didn’t seem to have a problem with the debt limit then. But now they don’t want to pay the bill,” said Sen. Sherrod Brown (D-Ohio), chairman of the Senate Banking Committee.
“The partisan game is pretty transparent,” he added. “We can’t play politics with the full faith and credit of the United States.”
Raising the debt ceiling does not affect the size of the national debt or future congressional spending. It allows the Treasury Department to pay off expenses already approved by issuing more bonds to generate cash and would be necessary even if Democrats don’t pass another partisan multitrillion-dollar bill.
Failing to raise the debt ceiling would cause the government to default on its debt for the first time in U.S. history. Experts say the consequences could be devastating, irreversible and cause widespread financial chaos.
Yellen warned Tuesday that the Treasury would be unable to make essential payments to tens of millions of Social Security enrollees, military personnel and families receiving federal benefits after Oct. 18. Critical federal programs could run out of funding and cause a deep economic decline amid the slowing recovery from the COVID-19 recession.
The sudden collapse of the full faith and credit of the U.S. could also send shock waves through global markets as trillions of dollars in Treasury bonds become irredeemable. Borrowing costs within the U.S. would skyrocket, and the crisis could threaten the U.S. dollar’s position as the global reserve currency, sapping a major source of economic strength for the country.
“This would be a manufactured crisis,” Yellen said. “We’ve just been going through a very difficult period; [the economy] is on the road to recovery and it would be a self-inflicted wound of the largest proportions.”
But Republicans accused Democrats of only seeking GOP votes to spread the blame for the future debt caused by their economic plans, even though raising the debt ceiling is necessary to cover past expenses.
“I understand why, politically, you folks want to have Republican fingerprints on the spending fiscal knife. I get that,” said Sen. John Kennedy (R-La.). “But is your politics so important that you’re going to gamble here on the sovereign debt of the United States when you have a very, very simple solution that you refuse to take?”
If Congress is unable to reach a deal before Oct. 18, the Biden administration would have to turn to several untested and potentially ineffective means to prevent a calamity.
The Treasury could decide to prioritize interest payments on debt and other pressing bills to prevent a technical default, but experts say it would be impossible to stay current on all obligations. The White House has ruled out executive actions that have been floated to avert a default, including the minting of a $1 trillion platinum coin or attempting to ignore the debt limit under a clause of the 14th Amendment.
“When evaluating these scenarios, it is important to remember that crossing the X Date would be an event unparalleled in our nation’s history, so uncertainty and risk abound,” wrote Shai Akabas, Rachel Snyderman and Andrew Carothers of the Bipartisan Policy Center, a nonpartisan think tank that closely tracks the debt limit.
“What is certain is that millions of households, business owners, and other entities would be stuck waiting on their payments from the federal government. In addition to the direct financial stress they would face, their counterparts—a landlord awaiting rent or another vendor in the supply chain—would quickly feel the impact as delays spread throughout the interconnected U.S. economy.”