Treasury Secretary Janet Yellen told Congress on Friday that the US is expected to reach the debt limit on Thursday and then take “extraordinary measures” to avoid default.

In a letter to House and Senate leaders, Yellen said her action would buy time until Congress passes legislation that would either increase the nation’s $31.4 trillion borrowing authority or suspend it for a period. But she said it was “critical that Congress act in a timely manner.”

“The government’s failure to meet its obligations will cause irreparable damage to the U.S. economy, the livelihoods of all Americans, and global financial stability,” she said.

“Even threats that the US government might default have caused real damage in the past, including the only downgrade in our nation’s history in 2011,” she said. Yellen was referring to the debt ceiling impasse during Barack Obama’s presidency, when Republicans also just won a majority in the House of Representatives.

In this new Congress, the debate over the debt ceiling will almost certainly spark a political showdown between newly elected GOP lawmakers who now control the House and want to cut spending, and President Joe Biden and Democratic lawmakers who have enjoyed one-party control of Washington for the past few years. two years.

The White House insisted that it would not allow the country’s credit to be held captive by the demands of Republican lawmakers.

“We’ve seen Republicans and Democrats come together to solve this problem,” White House press secretary Karin Jean-Pierre told reporters Friday. “This is one of the main points that Congress should be dealing with, and it should be done unconditionally.”

House Republican leaders liken the debt ceiling to a credit card limit and have said they will raise the statutory ceiling only if it also provides a spending overhaul.

New House Speaker Kevin McCarthy told reporters at his first news conference that he had a “very good conversation” with Biden about the upcoming debt ceiling debate. “We don’t want to create any fiscal problems for our economy and we won’t, but the fiscal problems continue to be business as usual,” he said.

“We have to change the way we spend money.”

McCarthy singled out the budget-limitation deal last worked out on the debt ceiling during the Trump administration, which would limit the level of federal spending in exchange for the House votes needed to raise the debt limit.

But any effort to compromise with House Republicans could force Biden to abandon his own priorities, whether it’s money for the IRS to ensure wealthier Americans pay what they owe or domestic programs for children and the poor.

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

They said the two parties worked together to triple the debt limit when Trump was president and Republicans held majorities in the House and Senate. “This time should be no different,” Democratic Party leaders said.

Yellen said that while the Treasury Department could not estimate how long the emergency measures would allow the US to continue paying government obligations, “it is unlikely that the cash and emergency measures will be exhausted before early June.”

Shai Akabas, director of economic policy at the Bipartisan Policy Center, told reporters on Friday that “this is not a time to panic, but it is certainly a time for politicians to start serious negotiations.”

“Most politicians agree that we have a serious fiscal problem as a country, our debt is unacceptable,” he said, and “there is no reason why we could not agree on measures to improve our financial performance and ensure that that we pay all our bills in full and on time.’

The Treasury Department first used emergency measures in 1985 and has used them at least 16 times since then, according to the Committee for a Responsible Federal Budget, a fiscal watchdog.

These measures include waiving certain payments, such as contributions to federal employee pension plans, to provide some margin for making other payments deemed important, including Social Security and debt instruments.

Earlier projections indicated that a default could instantly bury the country in a deep recession, just as global growth slows as the US and much of the world grapple with high inflation due to the pandemic and Russia’s invasion of Ukraine. Financial markets could collapse and several million workers could be laid off.

Aftershocks were felt for years. Moody’s Analytics called the risk “cataclysmic” in its 2021 forecast ahead of the previous debt ceiling hike, suggesting the resulting chaos would be caused by government dysfunction rather than the underlying state of the US economy.

The report used information from the Associated Press.

Copyright © 2023, The Associated Press. All rights reserved.

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