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• Treasury Secretary Janet Yellen warned that Congress has until October 18 to address the looming debt limit to avoid an economic catastrophe
• The national debt stands at its statutory limit of $28.4 trillion
• Senate Republicans blocked a bill that would fund the government and suspend the U.S. borrowing limit wanting Democrats to table the bill
Treasury Secretary Janet Yellen on Tuesday wrote a letter to House Speaker Nancy Pelosi warning that Congress has under three weeks to address the looming debt ceiling and avoid near-certain economic disaster.
“We now estimate that Treasury is likely to exhaust its extraordinary measures if Congress has not acted to raise or suspend the debt limit by October 18,” Yellen wrote. “At that point, we expect Treasury would be left with very limited resources that would be depleted quickly.”
In a separate statement to the Senate Banking Committee, she warned, “It is imperative that Congress swiftly addresses the debt limit. If it does not, America would default for the first time in history. The full faith and credit of the United States would be impaired, and our country would likely face a financial crisis and economic recession.”
What is debt limit
The debt limit is the total amount of money that Congress authorizes the United States government to borrow to meet existing legal and financial obligations, including Social Security and Medicare benefits, military salaries, interest on the national debt, tax refunds, and others.
A vote to increase the debt ceiling allows the government to meet existing obligations that Congresses and Presidents of both parties have made in the past and does not authorize new spending commitments.
If Congress fails to raise the debt limit, the government will default on its legal obligations precipitating a financial crisis and threaten the jobs and savings of everyday Americans and force the nation to move towards economic recession.
Earlier warning
Yellen, on September 8, wrote a letter to Pelosi, House Republican leader, Senate majority leader, and Senate Republican leader on September 8, warning about the debt limit.
After August 1 of this year, when the debt limit was reinstated which was temporarily suspended since 2019, the national debt stands at its statutory limit of $28.4 trillion, according to research by the U.S. think tank group, Center on Budget and Policy Priorities.
Since then, the Treasury has continued borrowing to finance government operations temporarily by using “extraordinary measures” by suspending investments in the Civil Service Retirement and Disability Fund, the Postal Service Retiree Health Benefits Fund, and the Government Securities Investment Fund of the Federal Employees’ Retirement System Thrift Savings Plan.
Current concern
In Tuesday’s letter, Yellen said if Congress fails to increase or suspend the debt ceiling by October 18, the Treasury would be left with very limited resources that would be depleted quickly, and the nation would miss payments to its debtholders.
She also said that the government’s daily gross cash flow averages nearly $50 billion per day over the past year, which excludes financing and has exceeded $300 billion.
Senate Republicans on Monday blocked a bill that would fund the government and suspend the borrowing limit.
The GOP opposed the House-approved bill because it included a provision to suspend the debt ceiling, as the Republicans want Democrats to raise or suspend the debt ceiling by including a provision in their $3.5 trillion reconciliation bill.
The U.S. government will shut down at the end of September if lawmakers fail to approve new funding or appropriations bill and will force the government agencies to send thousands of federal employees home and operate at a limited capacity until funding is resumed.
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