Yellen Warns Of ‘Economic and Financial Chaos’ If Congress Fails To Act On Debt Ceiling

Yellen warned Sunday of historical economic consequences if the U.S. defaults on its debt payments

Treasury Secretary Janet Yellen warned on Sunday that “financial and economic chaos would ensue,” if the U.S. fails to raise the debt ceiling by early June and strongly urge Congress to take decisive action to avoid an “economic calamity” ahead of President Biden’s meeting with “Big Four” Congressional leadership Tuesday.

With the June 1 “X-date” quickly approaching, Yellen struck an increasingly troubled tone Sunday on ABC “This Week,” warning of an economic disaster that would follow should the government fail to come to an agreement on raising or suspending the debt ceiling.

When asked by ABC’s George Stephanopoulos if the Treasury could invoke the use of the 14th Amendment that would declare the debt ceiling unconstitutional in order to get around Congress on the issue in order to continue borrowing money, Yellen warned this method would trigger a “constitutional crisis” and that there is nothing the Biden Administration could do to avoid an “economic catastrophe” if it were to be invoked.

“Our priority is to make sure that Congress does its job,” Yellen said. “There is no way to protect our financial system in our economy other than Congress doing its job and raising the debt ceiling and enabling us to pay our bills. And we should not get to the point where we need to consider whether the president can go on issuing debt. This would be a constitutional crisis.”

Yellen said she will not rule out the possibility of declaring the debt ceiling unconstitutional if Congress cannot resolve its standoff over the debt ceiling, but it’s an option the Treasury Secretary says the White House doesn’t want to have to consider.

“Look, all I want to say is that it’s Congress’s job to do this,” Yellen replied. “If they fail to do it, we will have an economic and financial catastrophe that will be of our own making and there is no action that President Biden and the U.S. Treasury can take to prevent that catastrophe.”

“I don’t want to consider emergency options,” Yellen added.

Stephanopoulos pressed further as to whether the 14th Amendment is considered an “emergency’ option by the White House. President Biden on Friday was questioned of trying to use the 14th Amendment as a solution: “I’ve not gotten there yet.”

The 14th Amendment confirms “the validity of the public debt shall not be questioned” to raise the ceiling unilaterally. 

In a letter to House Speaker Kevin McCarthy (R-CA) last Monday, Yellen called for decisive action, stating new data on tax receipts forced the department to move up its estimate of when the Treasury Department “will be unable to continue to satisfy all of the government’s obligations” to potentially as early as June 1. The federal government reached its $31.4 trillion debt limit in January. Since then, the Treasury Department has used “extraordinary measures” to keep funds going in the meantime.

Biden is slated to meet with “Big Four” Congressional leaders that include McCarthy, House Minority Leader Jeffries (D-NY), Senate Majority Leader Chuck Schumer, and Senate Minority Leader Mitch McConnell (R-KY) this week on the debt ceiling as Yellen has warned the United States would default on its obligations on June 1.

Both sides remain in a deadlock on how to raise the debt limit with neither Democrats nor Republicans seeming ready to fold their hands. The U.S. unlike most countries puts a hard limit on how much it can borrow. Since the federal government runs on a deficit, spending more than it brings in revenue, lawmakers must periodically raise the debt ceiling to pay off its old spending.

The White House and Democrats have insisted that the debt ceiling proposal should be clean, while McCarthy and Republicans are pushing back such a request, saying that any deal needs to include spending cuts. After the one-on-one meeting with McCarthy in February, Biden has continued to say he will not negotiate over the debt ceiling increase and will discuss budget cuts separately after a new debt limit is passed.

The House Republican debt ceiling bill would pare spending back to 2022 federal levels, cap future discretionary spending at 1% A year, repeal parts of Biden’s “Inflation Reduction Act” tax credit incentives for renewable energy, and strengthen work requirements for some government benefits.

Yellen during the ABC News interview reiterated Biden’s demand to separate debt-ceiling increases from any budget compromise or spending cut measures.

“I know [Biden] wants to set up a process in which spending priorities and levels are discussed and negotiated,” Yellen said. “But these negotiations should not take place with a gun, really, to the head of the American people.”

“Since 1960, the debt ceiling has been raised 78 times, three times during the prior administration, always with bipartisan support,” Yellen added. “And it simply is unacceptable for Congress to threaten economic calamity for American households and the global financial system as the cost of raising the debt ceiling and getting the agreements on budget priorities. But, of course, in negotiation, that spending levels and priorities should take place and the president is more than prepared to engage in that negotiation.”

Sen. Mike Lee (R-UT) lead a group of 43 Republican Senators in signing a letter informing Schumer that the coalition is united in standing firmly behind the recently passed House-Republican debt bill and would not help Senate Democrats pass a debt ceiling increase without “spending cuts and structural budget reform.”

“As Kevin McCarthy, speaker of the House, meets with the White House, it’s imperative that he arrive in a position of negotiating power,” Lee said, speaking on Fox News ‘Sunday Morning Futures With Maria Bartiromo.’

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Yellen Warns Of  ‘Economic and Financial Chaos’ If Congress Fails To Act On Debt Ceiling

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