U.S. Treasury Secretary Janet Yellen on Saturday warned against the country defaulting on its debt, saying that it “would cause widespread damage to the U.S. economy.”
The United States on Thursday hit its $31.4 trillion debt limit, with Yellen announcing that the Treasury was taking “extraordinary measures” to keep paying the federal government’s bills and keep certain systems funded. Such measures are a last-ditch effort that can be undertaken should the country reach its debt ceiling. Should they be exhausted, however, the U.S. would default on its debt.
The debt limit is the cap on the amount of money that the U.S. government can borrow to pay its debts. It also allows the government to pay existing legal obligations that Congress and presidents have made in the past, according to the Treasury.
In a letter sent to newly-elected House Speaker Kevin McCarthy and other Republican and Democratic leaders in the House and Senate on Friday, Yellen wrote that the Treasury anticipates implementing two measures to avoid breaching the debt limit: redeeming existing and suspending new investments in the Civil Service Retirement and Disability Fund and the Postal Service Retiree Health Benefits Fund, as well as suspending reinvestment of the Government Securities Investment Fund of the Federal Employees Retirement System Thrift Savings Plan.
Yellen predicted that the current measures will last the country until June.
A default has never happened before in the country as Congress has been able to raise the debt ceiling, which occurred 22 times between 1997 and last year. The current measure to raise the limit is, however, facing pushback from House Republicans, who have called for spending cuts to be part of the measure, with some calling for cuts to Social Security and Medicare spending.
Yellen has called on Congress to raise the debt ceiling as soon as possible “without condition,” and warned in a tweet on Saturday that a first-ever default on the country’s debt would cause global economic turmoil.
“Since 1789, the U.S. has always paid all of its bills,” the tweet from Yellen’s account read. “The knowledge that we can be trusted and counted on to do that underlies the foundations of the entire global financial system. Default would cause widespread damage to the U.S. economy.”
In a recent interview with Fox News, McCarthy said that he wants spending cuts of some kind to be part of any debt limit bill, in order to not bankrupt Social Security or Medicare.
“You couldn’t just keep increasing it,” McCarthy said. “Let’s sit down and change our behavior for the good of America. Because what we’re going to do is bankrupt this country and bankrupt these entitlements if we don’t change their behavior today.”
The Biden administration, meanwhile, has said that it will not be willing to tie such conditions to debt limit talks.
“This is just another attempt by congressional Republicans to force unpopular cuts on programs critical to seniors, the middle class and working families,” White House press secretary Karine Jean-Pierre said Tuesday. “Congress needs to act and do so quickly. There is no excuse for political brinkmanship.”
Newsweek reached out to the Treasury Department for comment.