US Treasury secretary Janet Yellen has warned of a “constitutional crisis” that risks economic and financial catastrophe if Congress does not raise the federal debt limit, with the government in danger of running out of cash in the absence of new borrowing capacity.
The White House and Republican lawmakers are in a stalemate over lifting the debt ceiling, which Yellen has said could be breached as early as June 1. Her comments came two days before US president Joe Biden was scheduled to meet congressional leaders in new talks on the fiscal impasse.
“If Congress fails to meet its responsibility, there are simply no good options,” she said in an interview on ABC’s This Week on Sunday.
Biden administration officials have considered whether they could invoke the 14th amendment of the US constitution to continue issuing new debt to pay social security recipients, bondholders, government employees and others without legislative approval.
A clause in the amendment states that “the validity of the public debt of the United States, authorised by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned”. Economists and constitutional experts are split over whether circumventing Congress in this way would be legal.
The US “should not get to the point where we need to consider whether the president can go on issuing debt. This would be a constitutional crisis,” Yellen said.
Asked whether Biden would invoke the 14th amendment, Yellen said she did not yet want to consider emergency options, but using the clause would be “among the not-good options”. Raising the debt ceiling was Congress’s job, she added.
“If they fail to do it, we will have an economic and financial catastrophe that will be of our own making, and there is no action that President Biden and [the] US Treasury can take to prevent that catastrophe.”
House Republicans late last month passed a bill that would raise the $31.4tn debt limit by $1.5tn and delay the risk of a default until next year. The legislation, which contained a laundry list of Republican spending cuts and policy priorities such as rolling back the cancellation of student loan debt, is destined to fail in the Democrat-controlled US Senate but is seen as a starting point for talks between the parties.
“There are no red lines,” Patrick McHenry, the Republican chair of the House Financial Services Committee, said on CBS’s Face the Nation when asked about the coming discussions with Biden. “Everything is on the table at this point. The key thing that has to be in this equation is addressing our fiscal house, short term and long term.”
Biden, asked if he would invoke the 14th amendment, said in an interview broadcast on Friday that he had “not gotten there yet”. He will host congressional leaders from both parties at the White House on Tuesday and said he was prepared to “negotiate in detail” over a separate Republican budget proposal. But he has called for Republicans to lift the debt ceiling without conditions.
Even if the US did avoid default, approaching the deadline without a resolution meant it would “likely see financial market consequences,” Yellen warned.
Speaking on MSNBC on Sunday, deputy Treasury secretary Wally Adeyemo said a US default would significantly affect the government’s borrowing ability.
“If we were to default on our debt, it would have a terrible impact on interest rates,” he said.