WASHINGTON – President Joe Biden and Treasury Secretary Janet Yellen warned Tuesday of a potential economic crisis if a deal isn't reached to increase the federal debt ceiling.
They raised the alarm during speeches to the National Association of Counties, which was holding a conference in Washington.
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Biden said many local governments have recovered from the pandemic, but "some in Congress are putting that progress at risk by threatening to have America default on its debt, which would be catastrophic for counties and the country. Even coming close to default would raise borrowing costs, making it harder to finance key projects in your communities."
The concern over the debt ceiling is the result of a political showdown between House Republicans, who are demanding spending cuts, and the Democratic president, who insists on raising the limit without conditions.
Yellen similarly warned of a “catastrophe” in her own speech.
“In the longer term, a default would raise the cost of borrowing into perpetuity. Future investments, including public investments, would become substantially more costly,” she said.
“Household payments on mortgages, auto loans, and credit cards would rise, and American businesses would see credit markets deteriorate," she said. “On top of that, it is unlikely that the federal government would be able to issue payments to millions of Americans, including our military families and seniors who rely on Social Security.”
Yellen notified Congress last month that the U.S. Treasury Department has resorted to “extraordinary measures” to avoid default on the nation’s $31.4 trillion borrowing authority. But the extraordinary measures would likely run out — and put the U.S. at risk of default — sometime around early June.
In a Jan. 13 letter to House and Senate leaders, Yellen said her actions will buy time until Congress can pass legislation that will either raise or suspend the limit, but she said it’s “critical that Congress act in a timely manner.”
Her latest comments come ahead of the Congressional Budget Office’s projections to be released Wednesday, which updates the office’s expectation about when Treasury will no longer be able to pay its obligations fully if the debt limit is not raised.
“Let’s not wait until the last minute,” Yellen said. ”I believe it is a basic responsibility of our nation’s leaders to get this done.”
Biden and Republican House Speaker Kevin McCarthy met at the White House this month to discuss the issue. McCarthy told the president he would not raise the debt ceiling without concessions from Democrats.
“No agreement, no promises except we will continue this conversation,” McCarthy told reporters outside the White House after the meeting.
During his State of the Union address last week, Biden chided Republicans over the debt ceiling — suggesting that Republicans want to slash Medicare and Social Security.
Senate Republican leader Mitch McConnell on Tuesday continued trying to distance his party from those on the GOP’s right flank who have proposed ways to reel in spending on the popular programs.
“Let me say one more time: There is no agenda on the part of Senate Republicans to revisit Medicare or Social Security. Period,” McConnell said.
McConnell did indicate his support for McCarthy’s efforts to negotiate with Biden over spending cuts elsewhere in the federal budget as part of any deal with Congress to vote on raising the debt limit. But he also insisted the debt limit would be raised to avert what could be a fiscally dangerous default.
“America’s never going to default,” McConnell said.
Senate Majority Leader Chuck Schumer, D-N.Y., said it was time for McCarthy to “show us” his plan.
“He said he wants to make cuts, he has an obligation to show what those cuts are,” Schumer said.
Schumer said he was doubtful McCarthy would be able to corral his Republican majority in the House behind any plan because of the deep divisions between the hard-right and more traditional conservatives. He said some Republicans still back changes to the Social Security and Medicare programs.
“He’s going to have a rough time,” Schumer said of the House speaker. “The hard-right people want the deepest kind of cuts.”
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Associated Press writer Lisa Mascaro contributed to this report.