© Reuters. FILE PHOTO: US Treasury Secretary Janet Yellen (R) speaks during a meeting with Japan’s Finance Minister Shunichi Suzuki at the G7 Finance Ministers and Central Bank Governors’ Meeting in Niigata on May 13, 2023. KAZUHIRO NOGI/Pool via REUTERS
By Andrea Shalal
NIIGATA, Japan (Reuters) -Treasury Secretary Janet Yellen on Saturday called a showdown over raising the U.S. debt ceiling “more difficult” than in the past but said she remained hopeful a solution could be found to avert a first ever U.S. default
Yellen told Reuters in an interview on the sidelines of a meeting of Group of Seven finance officials in Japan that she hoped to update the U.S. Congress within the next couple of weeks about when exactly Treasury would run out of funds to pay the government’s bills.
The U.S. Treasury chief has called repeatedly for Congress to agree to raise the $31.4 trillion cap on federal borrowing to avert the “economic and financial catastrophe” that would ensue if the United States defaulted on its debts.
British finance minister Jeremy Hunt told reporters the standoff posed a “very serious” threat to the global economy.
“It would be absolutely devastating if America… was to have its GDP knocked off track by not reaching agreement,” Hunt said on the sidelines of the G7 meetings.
Yellen said her estimate last week that the Treasury may not be able to meet payment obligations as early as June 1 was consistent with Friday’s report from the Congressional Budget Office warning of a “significant risk” of default in the first two weeks of June.
President Joe Biden, a Democrat, insists Congress has a constitutional duty to raise the limit without conditions to fund previously approved spending. Republicans, who control the House of Representatives, want Biden to agree to sweeping budget cuts to secure their agreement.
Unlike most developed countries, the U.S. sets a ceiling on how much it can borrow. Because the government spends more than it takes in, lawmakers must periodically raise that cap.
POLARISATION
Yellen said the first major standoff over the debt ceiling since 2011 reflected continuing U.S. polarisation after the presidency of Donald Trump.
“It’s certainly not a positive for relationships and standing in the world and credibility,” she said. “Maybe this time is more difficult, but I’m hopeful that…we will find a solution.”
She said it was a positive sign that “pretty much everyone” at a meeting Biden hosted with congressional leaders on Tuesday agreed it would be unacceptable for the U.S. to default.
Biden, who is expected to reconvene the group early next week, still viewed attending the G7 summit starting on Friday in Hiroshima as a priority, Yellen said, although she noted that he had said he could cancel the trip if there was not sufficient progress on ending the impasse.
Despite the debt ceiling fight, Yellen said she remained convinced that the Biden administration had re-established U.S. leadership in the world and other G7 leaders were grateful they had turned “the dial 180 degrees relative to the Trump administration”.
She argued there were no good options for prioritising payments in the event of a default, but conceded it would be technically possible to process them one day at a time as revenue came in, resulting in a sort of rolling default. Principal and interest payments are handled separately.
In a report this week, the Bipartisan Policy Center said some Treasury officials had viewed the approach as the most plausible and least harmful during the 2011 standoff.
“We shouldn’t be talking about that,” Yellen said. “We should be talking about raising the debt ceiling. Every plan has serious downsides.”
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In the midst of a looming government shutdown and a possible debt ceiling showdown, US Treasury Secretary Janet Yellen offered encouraging news on Tuesday, saying she was hopeful of a solution to the stalemate between Congress and the White House.
In a speech to the Council on Foreign Relations Tuesday, Yellen said that the situation posed by the debt ceiling standoff was significantly more difficult than the usual debt ceiling dispute that Congress faces each year, but hinted that the matter was still resolvable.
“Right now, the challenge we face is that the Treasury Department will soon exhaust our extraordinary measures, and Congress will need to raise the debt ceiling to ensure that the government can meet its financial obligations,” Yellen said. “The risks posed by another debt ceiling showdown are immense, but I am cautiously optimistic that our elected officials can find a path forward.”
Yellen also echoed President Joe Biden’s sentiment that the debt ceiling standoff requires compromise and bipartisanship to solve.
“We must all remain focused on ensuring that our government is able to meet its obligations,” she said. “This is a fundamental responsibility of Congress and the President and will require bipartisan compromise.”
Yellen noted that the debt ceiling impasse is deeply concerning, as not meeting its obligations could disrupt vital government services, other programs, and the global financial system, in addition to threatening the US credit rating.
“The US must maintain its undisputed status as the world’s premier safe haven for investors—a competitive advantage that we must not jeopardize,” Yellen said. “Given the risks posed to the US and global economy, Congress must come together to resolve this situation as soon as possible.”
Yellen concluded her speech by urging Congress to act on the debt ceiling negotiations with urgency and ambition, recognizing the long-term impact of the debt ceiling and remaining focused on averting an economic calamity.
“The stakes are simply too high for us to fail to get this right,” she added.’
