March 22, 2023, 15:49

Treasury secretary warns of ‘calamity’ if Congress doesn’t raise debt limit

Treasury secretary warns of ‘calamity’ if Congress doesn’t raise debt limit

Treasury Secretary Janet Yellen said Tuesday that if Congress doesn’t raise the debt ceiling by the deadline it would be a “calamity.”

Testifying before the Senate Committee on Banking, Housing and Urban Affairs alongside Federal Reserve Chairman Jerome Powell, Yellen said the U.S. could hit its debt limit in less than three weeks, as early as Oct. 18.

“This would be a manufactured crisis we had imposed on this country, which has been going through a very difficult period and is on the road to recovery,” she said. “This would be a self-inflicted wound of enormous proportions.”

MORE: Senate Republicans block debt limit measure, stopgap funding as government shutdown looms

The United States has never defaulted on its debt. Congress has voted 80 times to raise or suspend the debt limit since 1960.

Yellen has previously laid out the consequences to lawmakers of missing the deadline. She has said nearly 50 million seniors could temporarily stop receiving Social Security payments, troops could go unpaid and millions of families who receive the monthly child tax credit could experience delays. A default could also trigger a spike in interest rates and result in a steep drop in stock prices and other financial turmoil, reversing the current economic recovery into a recession, with billions of dollars of growth and millions of jobs lost.

Kevin Dietsch/POOL/AFP via Getty ImagesTreasury Secretary Janet Yellen speaks during a Senate Banking, Housing and Urban Affairs Committee hearing on the CARES Act, at the Hart Senate Office Building, Sept. 28, 2021, in Washington, D.C.

Yellen painted a grim picture again Tuesday.

Even if Congress increases the debt limit but does so too close to the deadline, it could cause economic fallout, Yellen said.

“Furthermore, we know from previous debt limit impasses that waiting until the last minute can cause serious harm to business and consumer confidence, raise borrowing costs for taxpayers and negatively impact the credit rating of the United States for years to come. Failure to act promptly could also result in substantial disruptions to financial markets, as heightened uncertainty can exacerbate volatility and erode investor confidence,” Yellen outlined in a letter to congressional leadership.

MORE: Republicans dig in on debt-limit standoff despite Democratic effort to mount pressure

Yellen also reiterated that raising the debt limit has nothing to do with future government spending — a point some Republicans have tried to push as reason for not supporting a debt-limit hike as Democrats on the Hill scramble to try to pass both a bipartisan infrastructure bill and a larger social spending package.

“I want to see that the debt ceiling is raised. I believe that it would be catastrophic not to do so. But I equally believe that deficits have been under both Democratic and Republican administrations, it’s important to recognize that, and that means paying the bills for those deficits is a shared responsibility,” Yellen testified.

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