Yellen Says No Good Alternative to Congress Lifting Debt Cap

·3 min read

(Bloomberg) -- Treasury Secretary Janet Yellen said there are “simply no good options” for solving the debt limit stalemate in Washington other than Congress lifting the cap and cautioned that resorting to the 14th Amendment would provoke a constitutional crisis.

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“We should not get to the point where we need to consider whether the president can go on issuing debt” without Congress lifting the debt ceiling, Yellen said Sunday on ABC’s “This Week.”

“This would be a constitutional crisis,” she said.

Constitutional scholars and economists have been split on the idea that the administration continue issuing debt by citing a provision of the US Constitution that says the validity of public debts “shall not be questioned.”

Yellen deflected several questions on whether Biden might use that option, returning time and again to her insistence that Congress lift the ceiling.

“All I want to say is that it’s Congress’s job to do this,” she said. “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 US Treasury can take to prevent that catastrophe.”

President Joe Biden is scheduled to meet House Speaker Kevin McCarthy and other congressional leaders Tuesday to discuss the debt ceiling.

Biden and congressional Republicans are locked in a staredown over raising the $31.4 trillion borrowing limit, with GOP leaders demanding promises of future spending cuts before they approve a higher ceiling. Biden has insisted on a “clean” increase, with budget talks kept separate.

“I don’t want to consider emergency options,” Yellen said Sunday. “What to do if Congress fails to meet its responsibility — there is simply no good options.”

Representative Patrick McHenry, a Republican from North Carolina who chairs the House Financial Services Committee, suggested that a deal for a short-term debt limit increase is an option, echoing comments by White House Budget Director Shalanda Young on Thursday.

“Everything is on the table at this point,” McHenry said on CBS’s “Face the Nation” on Sunday. “The key thing that has to be in this equation is addressing our fiscal house, short term and long term.”

“There are no red lines other than the fact we must address our fiscal house,” he said.

The federal government reached the statutory cap on borrowing in January and the Treasury has since been using special accounting measures to make cash available. Those measures could run out as soon as June 1, Yellen told Congress last week.

Republicans have sought to increase leverage over Biden by narrowly passing a plan that calls for an increase in the debt ceiling by $1.5 trillion — enough to prevent a default until next March 31 — in exchange for $4.8 trillion in budget cuts. Almost all Senate Republicans said in a letter released Saturday that they’d oppose allowing a vote on legislation with a “clean” debt-ceiling increase.

Biden said on Friday he wasn’t yet prepared to invoke the 14th Amendment to avert a breach of the debt ceiling, but didn’t rule out the possible executive action.

“I’ve not gotten there yet,” Biden said when asked about the possibility in an interview with MSNBC.

Invoking the amendment would seem certain to prompt a high-stakes legal fight that risks roiling markets. Yellen was dismissive of the idea during a 2021 debt-ceiling standoff, saying it would be “disastrous” if the administration needed to consider it.

On Sunday, she repeatedly sought to turn the onus to Congress.

“It simply is unacceptable for Congress to threaten economic calamity for American households and the global financial system as the cost of raising the debt ceiling and getting agreement on budget priorities,” Yellen said.

--With assistance from Jennifer A. Dlouhy.

(Updates with House Financial Services Committee chairman’s comments in 10th paragraph.)

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