The official informed House Speaker Kevin McCarthy (R-CA) and other lawmakers in a recent letter that the debt ceiling, an arbitrary cap on the national debt established by Congress, exceeded the statutory limit of nearly $31.4 trillion as of this week. Yellen said in an interview with the Associated Press that House Republicans calling for spending cuts are risking a “self-imposed calamity in the United States and the world economy.”
“This is about paying bills that have already been incurred by decisions with this and past Congresses and it’s not about new spending,” she said, commenting that sustainable expenditures cannot be “negotiated over whether or not we’re going to pay our bills.”
Yellen, who is currently touring multiple African countries for a trip centered on the continent’s economic development, said that the position of withholding a debt ceiling hike until more spending cuts occur is “a very irresponsible thing to do” and added the position could have serious consequences even before “the day of reckoning.” Her letter to lawmakers said that new investments into the Civil Service Retirement and Disability Fund and the Postal Service Retiree Health Benefits Fund have been tentatively suspended; the “extraordinary measures” adopted by the Treasury Department to keep the government solvent are expected to last until June.
Yellen nevertheless forecasts that lawmakers will defuse the situation because they understand the economic calamity that would be spurred by the federal government defaulting on obligations. Beyond the possibility of a default, diminished trust in the government’s ability to repay debt can also cause “markets to become quite concerned,” she continued.
The federal government has relied upon sizable budget deficits over the past several decades to continue deficit-driven expenditures. Social Security, Medicare, and other health initiatives constituted 46% of the federal budget during the last fiscal year, according to data from the Treasury Department, even as maintenance costs on the national debt soar due to the present rise in interest rates across the economy.
Yellen, who previously directed the Federal Reserve, said in another notice last week that “failure to meet the government’s obligations” would mean “irreparable harm” to the domestic economy and the global financial system. “Presidents and Treasury Secretaries of both parties have made clear that the government must not default on any obligation of the United States,” she wrote. “Yet the use of extraordinary measures enables the government to meet its obligations for only a limited amount of time.”
As McCarthy plans to meet with President Joe Biden to discuss the debt ceiling negotiations, House Republicans have called upon their Democratic counterparts to determine possibilities for spending cuts. Ways and Means Committee Chairman Jason Smith (R-MO) remarked in a statement that “reckless spending” has produced “the worst spike in prices in forty years” and resultant decreases in living standards.
“Instead of attacking his political opponents, President Biden should be spending this time working with House Republicans to address the debt ceiling in a way that imposes some fiscal sanity. Otherwise, the President is simply scheduling America’s next debt crisis,” he continued. “We can find commonsense solutions to halt reckless spending, put American’s finances on stable footing, and ensure we meet our debt obligations.”