Treasury Secretary Janet Yellen said Monday that the administration will be forced into making “decisions” on how to proceed if Congress doesn’t end up raising the federal debt limit in time.
While reiterating her argument that the only “good” option is for lawmakers to boost the ceiling, Yellen said that if that doesn’t happen, the government will need to figure out “what to do with the resources that we do have.” She spoke in an interview with CNBC.
Yellen repeated her warning that the Treasury risks running out of room to keep under the debt limit as soon as June 1. Yellen has long been loath to spell out exactly what happens after her department runs out of sufficient cash to make good on all federal obligations falling due.
President Joe Biden and congressional Republicans are locked in a staredown over raising the $31.4 trillion borrowing limit, with GOP leaders demanding promises of future spending cuts before they approve a higher ceiling. Biden has insisted on a “clean” increase, with budget talks kept separate.
Biden is scheduled to meet House Speaker Kevin McCarthy and other congressional leaders Tuesday to discuss the debt ceiling, but hopes for a quick resolution are slim.
Republicans have put forth “draconian” spending cuts, Yellen said. By contrast, President Joe Biden has put forward a “fiscally responsible” budget proposal. While the administration is open to talks, it won’t negotiate with a “gun” to the head in the form of the debt limit, she said.
“Clearly, there’s a very big gap between where the president is and where the Republicans are,” Yellen said.
No ‘Ranking’
Republicans and others have floated the idea of “prioritization” in the case where the Treasury exhausts its current special accounting maneuvers to stay under the debt ceiling. That would see the Treasury maintain payments on debt securities, but delay other outlays. Yellen and her predecessors have said that the department’s systems aren’t equipped for that, however.
Another extreme option that observers have put forward is invoking a clause in the 14th Amendment to the Constitution with regard to the credibility of US debt, and simply continuing to borrow.
“There are a variety of different options, but there are no good options — every option is a bad option,” Yellen said. “And I really don’t want to get into discussing them and ranking them.”
Failure of Congress to raise the debt ceiling would have an “adverse” impact on the use of the dollar around the world, Yellen also said. It would impose a massive economic hit, in a “catastrophe” for the nation, she said.
Asked separately about whether she would support a ban on short selling given the pressure certain regional bank stocks have faced in recent weeks, Yellen said the matter was up to the Securities and Exchange Commission. She noted that when such a ban was used in 2008 “it’s not clear that it made things better.”
(Updates with details on Biden meeting and comments on short selling, starting in fifth paragraph)
