US Treasury Secretary Janet Yellen has warned of a “constitutional crisis” that could trigger economic and financial catastrophe if Congress does not raise the federal debt limit, with the government at risk of running out of money for lack of new borrowing capacity.
The White House and Republican lawmakers are in a stalemate over lifting the debt ceiling, which Yellen says could be breached as early as June 1. Her comments came two days before US President Joe Biden was scheduled to meet with congressional leaders in new talks about the fiscal deadlock.
“If Congress doesn’t take responsibility, there just aren’t any good options,” she said in an interview on ABC’s This week on Sunday.
Biden administration officials have considered whether they can invoke the 14th Amendment to the US Constitution to continue issuing new debt to pay Social Security recipients, bondholders, government employees and others without regulatory approval.
A clause in the amendment states that “the validity of the United States national debt permitted by law, including debts incurred for the payment of pensions and premiums for services in the suppression of insurrection or rebellion, shall not be called into question “. Economists and constitutional experts are divided on whether it is legal to bypass Congress in this way.
The US “shouldn’t get to the point where we have to consider whether the president can continue to issue debt. This would be a constitutional crisis,” Yellen said.
When asked if Biden would invoke the 14th Amendment, Yellen said she didn’t want to consider contingency options just yet, but that using the clause would be “one of the not-good options.” Raising the debt ceiling was the job of Congress, she added.
“If they don’t do it, we will have an economic and financial catastrophe of our own making, and there is no action that President Biden and [the] US Treasury can take steps to prevent that catastrophe.”
Republicans in the House of Representatives passed a bill late last month that would raise the $31.4 trillion debt limit by $1.5 trillion and postpone default risk until next year. The legislation, which included a laundry list of Republican budget cuts and policy priorities such as reversing student loan forgiveness, is doomed to fail in the Democratic-controlled US Senate but is seen as a starting point for interparty talks.
“There are no red lines,” Patrick McHenry, the Republican chairman of the House Financial Services Committee, said on CBS’s Face the nation when asked about upcoming talks with Biden. “At this point, everything is on the table. The most important thing that needs to be in this equation is tackling our fiscal house, in the short and long term.
Biden, who was asked if he would invoke the 14th Amendment, said in an interview broadcast Friday that he “hadn’t gotten there yet.” He will receive congressional leaders from both parties at the White House on Tuesday and said he was willing to “negotiate in detail” on a separate Republican budget proposal. But he has called on Republicans to lift the debt ceiling without conditions.
Even if the US avoided bankruptcy, approaching the deadline without a resolution was “likely to have financial market implications,” Yellen warned.
Deputy Treasury Secretary Wally Adeyemo said on MSNBC Sunday that a U.S. bankruptcy would significantly erode the government’s borrowing capacity.
“If we didn’t pay our debts, it would have a terrible impact on interest rates,” he said.