Today's Paper Latest After 9/11 Coronavirus iPad Core Values Weather The Article Story ideas Newsletters Obits Puzzles Archive
ADVERTISEMENT

Yellen to take steps to avert debt default

by MARTIN CRUTSINGER AND ALAN FRAM THE ASSOCIATED PRESS | July 24, 2021 at 4:12 a.m.

WASHINGTON -- Treasury Secretary Janet Yellen told Congress on Friday that she will start taking emergency measures next week to keep the government from an unprecedented default on the national debt.

In a letter to House and Senate leaders, Yellen said her actions will buy time until Congress can pass legislation to either raise the debt limit or suspend it again for a period of time.

The debt limit has been suspended for the past two years but will go back into effect July 31. The total debt subject to the limit currently stands at $28.4 trillion.

Yellen said her first move Friday will be to suspend the sale of state and local government securities, which are used by some local jurisdictions to meet some of their financing needs but increase the level of debt held by the federal government.

If Congress has not acted to either raise the debt limit or suspend it by Aug. 2, Yellen said she will take "certain additional extraordinary measures in order to prevent the United States from defaulting on its obligations."

In her letter, Yellen noted that even the threat of a debt default -- something the United States has never done -- triggered the country's first-ever credit downgrade. That came during a standoff between congressional Republicans and the Obama administration in 2011, when the Standard & Poor's credit rating agency downgraded its rating on a portion of U.S. debt.

"That is why no president or Treasury secretary of either party has ever countenanced even the suggestion of a default on any obligation of the United States," Yellen wrote.

However, Senate Minority Leader Mitch McConnell, R-Ky., threatened this week that all Republican senators would vote against extending government borrowing authority. He cited objections to President Joe Biden's plans for boosting domestic spending and raising taxes on the top income earners.

If that occurred, Senate Democrats would lack the 10 GOP supporters they'd need to overcome a Republican filibuster or delaying tactics and move such language through the 50-50 Senate with 60 votes.

Democrats haven't yet decided on a legislative strategy to deal with a debt-limit impasse.

But Yellen's letter could steer them toward putting a provision extending the debt limit into a bill Congress will have to approve before Oct. 1 to prevent a government shutdown that day. The regular spending bills financing federal agencies for the fiscal year that begins Oct. 1 are unlikely to have been enacted by then.

That tactic would dare Republicans to block a bill that, if rejected, could result in both a federal shutdown and a default.

Responding to Mitchell's comments this week, Senate Majority Leader Charles Schumer, D-N.Y., called them "shameless, cynical and totally political."

Yellen said the unusual circumstances surrounding the government's response to the coronavirus pandemic made it hard to predict when she will run out of maneuvering room. She said that under some scenarios, her ability to keep borrowing might come to an end soon after Congress returns from its August recess.

She said a particular challenge will come Oct. 1, when government resources are expected to decline by about $150 billion because of large mandatory payments, including a required investment for Department of Defense-related retirement and health care support.

White House press secretary Jen Psaki said Friday that a debt default would be a "catastrophic event."

"We expect Congress to act promptly to raise or suspend" the debt limit and "protect the full faith and credit of the United States," Psaki told reporters.

Information for this article was contributed by Josh Boak of The Associated Press.

Print Headline: Yellen to take steps to avert debt default

ADVERTISEMENT

Sponsor Content

ADVERTISEMENT
ADVERTISEMENT