Yellen Outlines Measures on Debt Limit 07/24 06:32

   Treasury Secretary Janet Yellen told Congress on Friday that she will start 
taking emergency measures next week to keep the government from an 
unprecedented default on the national debt, warning that a default would cause 
"irreparable harm to the U.S. economy and the livelihoods of all Americans."

   WASHINGTON (AP) -- Treasury Secretary Janet Yellen told Congress on Friday 
that she will start taking emergency measures next week to keep the government 
from an unprecedented default on the national debt, warning that a default 
would cause "irreparable harm to the U.S. economy and the livelihoods of all 
Americans."

   In a letter to House and Senate leaders, Yellen said her actions will buy 
time until Congress can pass legislation to either raise the debt limit or 
suspend it again for a period of time.

   The debt limit has been suspended for the past two years but will go back 
into effect on July 31. The total debt subject to the limit currently stands at 
$28.4 trillion.

   Yellen said her first move on July 30 will be to suspend the sale of state 
and local government securities, which are used by some local jurisdictions to 
meet some of their financing needs but increase the level of debt held by the 
federal government.

   If Congress has not acted to either raise the debt limit or suspend it by 
Aug. 2, Yellen said she will be taking "certain additional extraordinary 
measures in order to prevent the United States from defaulting on its 
obligations."

   In her letter, Yellen noted that even the threat of a debt default -- 
something the United States has never done -- triggered the country's 
first-ever credit downgrade. That came during a standoff between Republicans in 
Congress and the Obama administration in 2011, when the Standard & Poor's 
credit rating agency downgraded its rating on a portion of U.S. debt.

   "That is why no president or Treasury secretary of either party has ever 
countenanced even the suggestion of a default on any obligation of the United 
States," Yellen wrote.

   However, Senate Minority Leader Mitch McConnell, R-Ky., threatened this week 
that all Republican senators would vote against extending government borrowing 
authority. He cited objections to President Joe Biden's plans for boosting 
domestic spending and raising taxes on the rich.

   If that occurred, Senate Democrats would lack the 10 GOP supporters they'd 
need to overcome a Republican filibuster, or delaying tactics, and move such 
language through the 50-50 Senate with 60 votes.

   Democrats haven't yet decided on a legislative strategy to deal with a 
debt-limit impasse.

   But Yellen's letter could steer them toward putting a provision extending 
the debt limit into a bill Congress will have to approve before Oct. 1 to 
prevent a government shutdown that day. The regular spending bills financing 
federal agencies for the fiscal year that begins Oct. 1 are unlikely to have 
been enacted by then.

   That tactic would dare Republicans to block a bill that, if rejected, could 
result in both a federal shutdown and a default. Most politicians would be 
averse to being blamed for such events, especially heading into an election 
year.

   Responding to McConnell's comments this week, Senate Majority Leader Chuck 
Schumer, D-N.Y., called them "shameless, cynical and totally political."

   Yellen's reference to the use of "extraordinary measures" to allow the 
government to keep borrowing to meet its debt service obligations and make 
payments on such benefits as Social Security refers to a variety of 
book-keeping maneuvers past Treasury secretaries have used.

   Those include disinvesting funds from accounts that pay pension benefits to 
government workers. Once the debt ceiling is dealt with, the funds that have 
been disinvested from various government accounts are replaced.

   Yellen said the unusual circumstances surrounding the government's response 
to the coronavirus pandemic made it hard to predict when she will run out of 
maneuvering room. She said that under some scenarios, her ability to keep 
borrowing might come to an end soon after Congress returns from its August 
recess.

   She said a particular challenge will come on Oct. 1, when government 
resources are expected to decline by about $150 billion due to large mandatory 
payments, including a required investment for Department of Defense-related 
retirement and health care support.

   White House Press Secretary Jen Psaki said Friday that the U.S. government 
has never allowed a debt default, which she said would be a "catastrophic 
event."

   "We expect Congress to act promptly to raise or suspend" the debt limit and 
"protect the full faith and credit of the United States," Psaki told reporters.