Treasury Secretary Janet Yellen warned lawmakers that “extraordinary measures” are necessary to avoid a debt crisis.
Two years ago, Congress suspended the debt ceiling — a measure that bars the federal government from taking on a certain level of national debt — until July 31, 2021. Yellen informed Congress that the Treasury Department will stop selling State and Local Government Series securities — a primary mechanism through which the government finances its debt — on July 30.
Congress must therefore act within the next week to prevent the federal government from defaulting.
In a letter to House Speaker Nancy Pelosi (D-CA), Yellen admonished Congress to protect “the full faith and credit of the United States” as soon as possible:
Increasing or suspending the debt limit does not increase government spending, nor does it authorize spending for future budget proposals; it simply allows Treasury to pay for previously enacted expenditures. The current level of debt reflects the cumulative effect of all prior spending and tax decisions, which have been made by Administrations and Congresses of both parties over time. Failure to meet those obligations would cause irreparable harm to the U.S. economy and the livelihoods of all Americans.
Even the threat of failing to meet those obligations has caused detrimental impacts in the past, including the sole credit rating downgrade in the history of the nation in 2011. This is why no President or Treasury Secretary of either party has ever countenanced even the suggestion of a default on any obligation of the United States.
As The Daily Wire reported on Thursday, some conservatives are using Congress’ need to address the debt limit in order to promote fiscal responsibility. According to a letter sent to leadership in both parties:
With record amounts of government spending over the past two years accompanied by historic levels of inflation, in addition to the dramatically changed fiscal conditions of the country over the past five decades, it is imperative for Congress to take meaningful steps now to place our country’s finances on a more sustainable and appropriate path. The upcoming expiration of the debt limit suspension provides an opportunity for Congress to do just that and instill some responsible and real controls over government spending.
The lawmakers suggested enacting spending-to-GDP targets, debt-to-GDP targets, and a balanced budget amendment to the Constitution.
Last week, Fitch Ratings — one of the “Big Three” credit rating agencies on Wall Street— issued a “Negative Outlook” on the United States’ creditworthiness due to rising levels of debt. Though the United States kept its “AAA” rating, Fitch explained that the outlook “reflects ongoing risks to the public finances and debt trajectory.”