US Treasury Secretary Janet Yellen warned that Washington may have to take “extraordinary measures” as early as next week to avoid a debt default, heightening tensions between Republicans and Democrats over the controversial issue.
In a letter addressed by the minister to the new Republican Speaker of the House, Kevin McCarthy, Yellen confirmed that her ministry is “preparing, starting this month,” to take the first measures regarding several pension funds for state employees.
Although these measures are supposed to be temporary, Yellen warned that in the absence of a new ceiling, the United States could find itself in default for the first time in its history, according to what was reported by Agence France-Presse.
This means that Washington will not be able to pay debt installments or interest within the deadlines.
“Failure to meet the government’s duties will cause irreparable damage to the US economy, the livelihoods of all Americans, and global financial stability,” she said in her letter.
But the Republican majority in the House of Representatives could use the time factor to try to force the Democrats to give up some of the expenses they approved when they had the majority of the seats in the House.
In this regard, House Speaker Kevin McCarthy told reporters Thursday that “the spending is out of control, there is no oversight, and it cannot continue in this way.” “We need to change the way we spend money recklessly in this country and we’re going to make sure that’s what happens,” he added.
On the Democratic side, member of the House Budget Committee Brendan Boyle considered Janet Yellen’s statement “very disturbing” and accused Republicans of “believing that it is natural to take our economy hostage to impose radical and unpopular reforms.”
As for the White House, it has called on Congress to raise the country’s debt ceiling, indicating that it has no intention of negotiating with the Republican majority on the matter.
And US presidential spokeswoman Karen Jean-Pierre reminded reporters that Republican and Democratic lawmakers usually cooperate on the issue, “and that is what is required,” adding that the issue of debt should not be politicized.
“House Republicans are literally telling Americans that they are prepared for the most egregious meltdown in modern history if they cannot cut spending on the most popular programs,” said her aide, Andrew Bates.
Among the expenses that Democrats say Republicans want to eliminate are those related to health insurance, especially for retirees, as well as food aid for the poor.
This is not the first time that the file has raised controversy. While lawmakers have raised or suspended the debt limit 78 times since 1960, often without difficulty, the 79th time in December 2021 caused dangerous tensions between the two parties.
The Republican minority at the time considered that raising the ceiling would be tantamount to giving a blank check to the US president, and accused him of contributing to exacerbating inflation. Democrats considered that raising the limit is intended to repay the borrowed money, including billions spent under President Donald Trump.
Congress then agreed to raise the cap to $31.381 billion at midnight on the day the previous cap was reached.
In her letter Friday, Janet Yellen stressed that raising or suspending the cap “does not mean allowing new spending” but simply “allowing the government to fund legal commitments that Congress and the president of both parties have made in the past.”
In a sign of anxiety at the idea of default, short-term US government bond interest rates jumped after the letter was published.
The yield on one-month Treasury bills rose to 4.43%, the highest level in more than 15 years (September 2007). Interest rates have risen a lot in recent months due to the US Federal Reserve’s tightening of monetary policy.