The official notified House Speaker Kevin McCarthy (R-CA) and other lawmakers in a letter that the debt ceiling, an arbitrary limit on the national debt established by Congress, has crossed the current statutory limit of $31.381 trillion as of Thursday. She therefore warned lawmakers that efforts to guarantee the solvency of the government have entered into effect.
Yellen said that new investments into the Civil Service Retirement and Disability Fund and the Postal Service Retiree Health Benefits Fund had been tentatively suspended until the beginning of June, clarifying that federal retirees and employees will not be affected by the actions. “The period of time that extraordinary measures may last is subject to considerable uncertainty,” she informed lawmakers. “I respectfully urge Congress to act promptly to protect the full faith and credit of the United States.”
The federal government has relied upon sizable budget deficits over the past several decades to sustain discretionary and mandatory spending programs. Social Security, Medicare, and other health initiatives constituted 46% of the federal budget during the last fiscal year, according to data from the Treasury Department, even as maintenance costs on the national debt soar due to the present rise in interest rates across the economy.
Yellen said in another notice last week that “failure to meet the government’s obligations” would cause “irreparable harm” to the domestic economy and the global financial system. “Presidents and Treasury Secretaries of both parties have made clear that the government must not default on any obligation of the United States,” she continued. “Yet the use of extraordinary measures enables the government to meet its obligations for only a limited amount of time.”
The most recent breach of the debt ceiling occurs after Republican lawmakers struck a deal with McCarthy under which the party’s new majority would introduce a budget that refrains from increasing the statutory debt limit. Senate Majority Leader Chuck Schumer (D-NY) and House Minority Leader Hakeem Jeffries (D-NY) contended in a statement that Republicans alone are to blame for the fiscal uncertainty.
“A default forced by extreme MAGA Republicans could plunge the country into a deep recession and lead to even higher costs for America’s working families on everything from mortgages and car loans to credit card interest rates,” they said.
Administrations led by both Republicans and Democrats have presided over rampant budget deficit increases in recent years; shortfalls worsened as lawmakers approved multiple stimulus packages in reaction to the lockdown-induced recession. The national debt is now $31.5 trillion.
A recent analysis from economists at the University of Pennsylvania’s Wharton School revealed that a 30% decrease in spending or a 40% increase in taxation would be necessary to handle current deficit spending and future obligations. A similar study from the Committee for a Responsible Federal Budget found that policymakers must enact 26% across-the-board spending cuts in order to balance the budget within the next decade; in order to balance the budget while exempting programs such as defense, veteran benefits, Social Security, and Medicare from cuts, all other federal spending would have to be reduced 85%.