Janet Yellen warns that ‘time is running out’ to avert an economic catastrophe from hitting the debt ceiling

Janet Yellen, US Treasury secretary, speaks
The livelihoods of millions of Americans “hang in the balance,” Yellen said.
Issei Kato—Reuters/Bloomberg/Getty Images

Treasury Secretary Janet Yellen warned that “time is running out” to avert an economic catastrophe from failing to raise the debt ceiling, in remarks released as President Joe Biden and congressional leaders prepared to meet on the standoff.

Speaker Kevin McCarthy issued his own notice Monday evening ahead of Tuesday’s 3 p.m. gathering, saying, “We only have so many days left to deal with this.”

The two sides showed little signs of agreeing on much else than the countdown in the runup to the second White House encounter on the debt ceiling in two weeks. While senior staff have been negotiating for days, Republicans are still pressing for sweeping spending cuts, while Democrats are determined to protect the president’s legislative achievements.

“We are already seeing the impacts of brinksmanship: investors have become more reluctant to hold government debt that matures in early June,” Yellen said in remarks prepared for delivery to a banking conference on Tuesday. “The impasse has already increased the debt burden to American taxpayers.”

The Treasury chief issued a fresh letter to congressional leaders Monday restating that the Treasury risks running out of sufficient cash for all federal obligations as soon as June 1. The livelihoods of millions of Americans “hang in the balance,” she said in excerpts of her speech to the Independent Community Bankers of America Capital Summit released by the Treasury.

“Every single day that Congress does not act, we are experiencing increased economic costs that could slow down the US economy,” Yellen said.

Biden and McCarthy have been at an impasse since January over raising the government’s $31.4 trillion borrowing limit. Economists have cautioned that US default risks triggering a market selloff, a surge in borrowing costs and a blow to the global economy that could rival the 2008 crash.Play Video

McCarthy emphasized that staff-level meetings are “not productive at all” and that negotiations were “not in a good place.”

Tuesday’s gathering comes a day before Biden is expected to depart for Asia, in a trip intended to showcase US determination to address strategic competition with China. White House officials said Monday that the plans to attend the Group of Seven summit in Japan, with stops in Papua New Guinea and Australia, had not changed despite the ongoing debt talks.

Biden Trip

Asked whether the president should go abroad at this point, McCarthy said, “I think an American president should focus on the solutions for America. I think it shows your values and priorities.”

People familiar with the meetings have said that the White House has pushed to exclude elements of the bill passed by House Republicans last month — including eliminating the president’s program to forgive some student loans, as well as signature legislative accomplishments — from discussions.

Republicans rejected a Democratic proposal that would seek to raise revenue — and decrease future deficits — by altering a dozen provisions of the tax code, including a loophole that allows investors in cryptocurrency to claim losses on assets that they then purchase. Democrats also proposed eliminating a loophole that allows large real estate investors to effectively receive interest-free financing from the government.

Those tax offerings were part of Biden’s budget proposal earlier this year. The White House offered to bring Republicans additional proposals but were told that the GOP would not consider any effort to raise taxes, according to the people familiar.

Deposits ‘Safe’

Last week, Representative Dusty Johnson of South Dakota, one of the authors of the House bill, said the GOP has three red lines: no clean debt increase, no tax increase, and the bill must reduce the deficit.

Yellen, in her Tuesday remarks, also addressed the recent banking turmoil in the US. Speaking after the failures of several regional banks in quick succession over the past two months, she reiterated that American deposits remain safe.

“Recent banking troubles including the resolution of First Republic are not a sign of any shift in the fundamental health of the US banking system,” Yellen said. 

“Americans should rest assured that their deposits are safe. Their deposits will be there when they need them.”

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