US Treasury Secretary Janet Yellen has said there is only one way out of the fiscal crisis created by the US hitting its debt ceiling: to raise the ceiling before the country defaults on its debts.
“It’s overly necessary for Congress to raise the debt limit, and I hope they do so in a timely way before we come to a crisis,” Yellen told US media on Thursday. She added she would not comment on “rumors” about a proposed temporary solution to the crisis.
Reports in US media on Thursday claimed Republicans had forwarded a proposal to Democrats to raise the debt ceiling, but only enough to last until September 30 of this year.
US House Speaker Kevin McCarthy (R-CA) has called on the White House to negotiate over the raising of the debt ceiling. He and other Republicans have long used the crisis created by hitting the debt ceiling as a point of leverage to make Democrats agree to their demands to make sharp cuts to federal government spending, especially on social programs they failed to defund through normal legislative means.
Yellen has rejected the notion Democrats should be forced to give political concessions in exchange for Republicans agreeing to raise the limit. She has also rejected what she called “gimmick” solutions, such as minting a $1 trillion coin.
House Democrats have so far also resisted attempts by McCarthy, who commands a very narrow GOP majority in the House. Minority Leader Hakeem Jeffries (D-NY) said earlier this week there was “a difference between a compromise and a ransom note.” In the Democrat-controlled Senate, Democrat and GOP leaders alike have said the solution to this crisis has to begin in the lower chamber.
The federal government hit its $31.5 trillion spending limit on January 19, at which time Yellen began adopting “extraordinary measures” to keep making necessary payments on its debts. However, she has warned that such measures can only buy lawmakers so much time, and that in the absence of raising the debt ceiling, the extraordinary measures will only last until early June before the US government defaults on its debt.
Such an event would be a fiscal and economic catastrophe, destroying the country’s credit rating and plunging the economy into a recession - a situation it’s already teetering on the edge of anyway.
The debt ceiling was created during World War I as a way to simplify financing the large number of spending bills Congress passed at the time. It had previously approved debts piecemeal. Increasing the ceiling was a regular congressional chore for decades, only becoming a battlefield in the late 20th century as Republicans declared war on government-funded social programs.