Treasury Secretary Yellen Tells Congress the U.S. Will Exceed Its Debt Limit on Thursday
Secretary of the Treasury Janet Yellen sent a letter to Congress warning that the United States will exceed its statutory debt limit this Thursday, and that the Treasury Department must begin employing “extraordinary measures” at that time to stave off default.
“Failure to meet the government’s obligations would cause irreparable harm to the U.S. economy, the livelihoods of all Americans and global financial stability,” Ms. Yellen wrote.
Meanwhile, Republicans are insisting that any increase in the debt limit must be accompanied by a reduction in spending. Joe Biden and the Democrats are saying no negotiations will be entertained. The impasse sets up potentially the most consequential and bruising fight between the executive and legislative branches in decades.
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“The American people are the ones that’s demanding the cut in spending,” Rep. Jason Smith, a Missouri Republican and the chairman of the powerful House Ways and Means Committee, said Friday on Fox News. “We have to have fiscal reforms moving forward. We cannot just give an unlimited credit card.”
The new rules adopted by the House last Monday eliminate an easy path to raising the debt limit. The new Congress dropped the so-called Gephardt rule that in the past has allowed Congress to automatically increase the debt limit without a vote.
The White House is banking on an ad-hoc, bipartisan group of lawmakers to bypass the House leadership and pass a new debt limit.
The New York Times:
That group includes the entire Democratic caucus in the House and Senate, plus a handful of Republicans needed to pass bills in both chambers. Such a coalition could employ a rare tactic in the House, called a discharge petition, to force a floor vote on raising the limit. But the move would take weeks or even months to produce a bill that Mr. Biden could sign into law, which could threaten default if lawmakers misjudge the date when Treasury can no longer pay the nation’s bills.
The uncertainty surrounding that date is what’s going to make the next few months a free-for-all. With Democrats insisting there will be no negotiations and Republicans insisting there won’t be an increase in the debt limit without them, which side is going to blink first?
Republicans are carefully preparing the battlefield. They’ve developed a plan to tell the Treasury Department what to do if no deal on the debt limit is reached before whatever deadline is given by the Treasury Department.
In the preliminary stages of being drafted, the GOP proposal would call on the Biden administration to make only the most critical federal payments if the Treasury Department comes up against the statutory limit on what it can legally borrow. For instance, the plan is almost certain to call on the department to keep making interest payments on the debt, according to four people familiar with the internal deliberations who spoke on the condition of anonymity to describe private conversations. House Republicans’ payment prioritization plan may also stipulate that the Treasury Department should continue making payments on Social Security, Medicare and veterans benefits, as well as funding the military, two of the people said.
What about Medicaid or air traffic control?
Such a move would be unprecedented and hugely controversial, and even releasing the plan could turn into a major political liability for the GOP. A hypothetical proposal that protects Social Security, Medicare, veterans benefits and the military would still leave out huge swaths of critical federal expenditures on things such as Medicaid, food safety inspections, border control and air traffic control, to name just a handful of thousands of programs. Democrats are also likely to accuse Republicans of prioritizing payments to U.S. bondholders — which include Chinese banks — over American citizens.
“Any plan to pay bondholders but not fund school lunches or the FAA or food safety or XYZ is just target practice for us,” a senior Democratic aide told The Post.
This is a recipe for disaster, which is why Republicans aren’t really serious about this. Lawmakers and the White House will eventually sit down, if for no other reason than to calm financial markets that, if history is any guide, are going to go crazy the closer we get to a “drop-dead” default date. As far as a debt prioritization plan, the Democratic Senate will never agree to it, so in the end, it’s just an exercise in PR.
Yellen said in her letter that the date when all “extraordinary measures” are exhausted will probably be in early June. That’s not a lot of time for Congress to remake the federal budget and cut hundreds of billions of dollars in future spending.