The clock on a US government default began ticking down on Thursday, as US lawmakers failed to increase the $31.4 trillion debt ceiling to allow for more government spending.
Her letter, addressed to House Speaker Kevin McCarthy (R-CA), explained that she was immediately pausing the reinvestment of funds from several retirement and disability benefits funds for former federal employees, including at the US Postal Service and general civil service.
The Treasury chief has a number of other tricks up her sleeve to use existing funds to meet the US government's financial obligations, which effectively amount to pausing spending on programs to prioritize debt payments.
Yellen has predicted that the Treasury's "extraordinary measures" can only provide for debt payments until early June at the latest, at which time the US federal government would default on its debts, triggering an economic catastrophe.
"As I stated in my January 13 letter, the period of time that extraordinary measures may last is subject to considerable uncertainty, including the challenges of forecasting the payments and receipts of the US government months into the future," Yellen wrote on Thursday. "I respectfully urge Congress to act promptly to protect the full faith and credit of the United States."
Congress created the debt ceiling during the First World War to simplify the passage of large spending bills to finance the war effort, as it had previously authorized all debts individually. However, in recent years the debt ceiling has become a political battlefield as conservatives try to use the threat of a default to force their liberal colleagues to accept dramatic budget cuts, especially for social programs.
In a deal cut with a dissident Republican faction in order to win their support as House Speaker, McCarthy pledged to do just that.
“Let’s sit down together. Let’s look at the places that we can change our behavior,” McCarthy said in a US media interview earlier this week, addressing the White House. “Why would we sit back and be so arrogant to say, ‘No, there’s no waste in government?’”