The White House is warning House Republicans against attempting to use the imminent need to raise America’s statutory debt limit as leverage to extract concessions from the Biden Administration after Treasury Secretary Janet Yellen notified Congressional leaders that the US government’s outstanding debt obligations will reach the statutory ceiling of $3.41 trillion next week.
In a letter to House Speaker Kevin McCarthy and other Congressional leaders, Ms Yellen said the treasury will be forced to undertake “extraordinary measures” to avoid defaulting on America’s sovereign debt as soon as Thursday 19 January, such suspending new investments in pension and health benefits funds for civil servants and no longer reinvesting in several federal employee pension funds.
The Treasury Secretary’s announcement comes just days after the start of the 118th Congress, with control of the House of Representatives in the hands of a Republican conference that has in the past been willing to risk a debt default in an attempt to extract concessions from Democratic presidents.
The last time the GOP seized control the House under a Democratic chief executive was 2011, during then-president Barack Obama’s first term. At the time, the uncertainty over whether the House GOP would allow a default caused the first-ever downgrade in America’s credit rating by Moody’s.
Those concerns disappeared when Donald Trump controlled the executive branch, but with Biden now in the White House, the GOP is once again making use of a favored tactic.
In response to Ms Yellen’s letter, White House spokesperson Andrew Bates told reporters that any attempt by Republicans to engage in “debt ceiling hostage taking” would be “tantamount to holding a gun to millions of jobs and 401k plans” and said the “last thing American voters want” would be “needless financial pain caused by extreme ideology”.
“But needless financial pain is exactly what even the threat of default would inflict, let alone the unprecedented economic meltdown default would mean,” he said.
Mr Bates accused House GOP members of acting “against the health of the American economy” by stating their intention to “hold the debt limit hostage in order to force policy changes the American people do not support, including cuts to Medicare, Social Security, Medicaid, education, research, and other critical services”.
“Inflation is declining and unemployment is the lowest in 50 years. Threatening to reverse those trends by single-handedly, actively killing millions of jobs, bankrupting countless businesses, and devastating Americans’ 401ks unless you can force an extreme agenda on the country that Americans don’t support is malfeasance,” he said, adding that Mr Biden “will not stand for anyone saying, ‘unless I can cut Medicare, Social Security, Medicaid, or other programs seniors and middle class and working families count on, I will cost tens of millions of Americans their jobs and retirement savings.’”
“House Republicans are literally telling the country that they will cause the most egregious self-inflicted economic meltdown in modern history unless they can hurt the most popular programs in existence,” he added.
The statutory debt limit at issue is a century-old provision in US law first enacted in the Second Liberty Bond Act during the First World War. Originally intended to give the treasury flexibility to issue bonds to finance America’s war effort, it has remained on the books with the effect of capping how much the US can borrow to meet obligations it has already incurred, such as Social Security payments, government employee and military salaries, Medicare benefits, interest on the national debt, tax refunds, and other expenditures.
Ms Yellen, the treasury secretary, said the total amount of outstanding obligations incurred by the US will run up against the debt limit next week and stressed that Congress must act to raise the statutory limit to prevent a default, which experts say could throw the world economy into a global depression.
“Presidents and Treasury Secretaries of both parties have made clear that the government must not default on any obligation of the United States, and, as noted, Treasury Secretaries in every Administration over recent decades have used these extraordinary measures when necessary. Yet the use of extraordinary measures enables the government to meet its obligations for only a limited amount of time. It is therefore critical that Congress act in a timely manner to increase or suspend the debt limit,” she said.
Ms Yellen added that a “failure to meet the government’s obligations” would end up doing “irreparable harm to the US economy, the livelihoods of all Americans, and global financial stability”.
Although the term “debt limit” implies a cap on how much the US government can spend, it is actually a cap on the issuance of treasury securities which are sold to raise funds used to pay for expenditures that have already been authorised.
“Increasing or suspending the debt limit does not authorize new spending commitments or cost taxpayers money. It simply allows the government to finance existing legal obligations that Congresses and Presidents of both parties have made in the past,” she said, adding later that the treasury department cannot estimate how long the “extraordinary measures” will allow the US to avoid defaulting.
Mr McCarthy, the House Speaker, has said he understands the debt limit must be raised, but concessions he has made to a group of far-right members of his conference could stymie those efforts because the House rules the GOP has adopted for this Congress prevent the House from automatically suspending it upon passage of a budget resolution.
Speaking at her daily briefing with reporters, White House Press Secretary Karine Jean-Pierre said Congress should not wait until the treasury exhausts its’ ability to use the stopgap measures laid out by Ms Yellen to raise the limit, and should do so without conditions in the same way previous congresses handled the issue.
“The sooner Congress acts, the better, since even the prospect of not raising the debt ceiling will damage the full faith and the credit of our nation,” she said. “There's going to be no negotiation over it — this is something that must get done”.