US Treasury Secretary Janet Yellen renewed her call for Congress to lift the debt ceiling when she votes on the issue next week, warning that failure to do so would result in “economic catastrophe.”
Earlier this month, Yellen wrote a letter to Congress calling for a bipartisan agreement on the issue and followed it with an opinion piece published in the the Wall Street newspaper (WSJ) Sunday.
The fact that she felt the need to place an article on the pages of the WSJ, the leading voice of finance in the United States, indicates the seriousness with which she is viewed in the Biden administration.
In his latest comment, Yellen reiterated his warning that if the cap was not raised in October, it was not possible to say when, the Treasury Department would be strapped for cash and the federal government would be unable to. pay his bills.
“The United States has always paid its bills on time, but the overwhelming consensus among economists and treasury officials on both sides is that not raising the debt ceiling would produce widespread economic catastrophe,” she said. writing.
Yellen noted that the debt ceiling had been raised about 80 times since 1960. In the past, this had generally been done without conflict, with the notable exception of 2011 when, as Yellen recalled, “the debt limit absurdity “under the Obama administration” has pushed America to the brink of crisis.
Given the situation in Congress, with large sections of the Republican Party continuing to call for a “stolen election” that facilitated the Jan.6 coup attempt, Yellen believes a crisis, even bigger than ten years ago, could erupt over the debt problem.
Clearly calling on sections of finance capital to intervene directly, Yellen said the United States has never defaulted and that “would likely precipitate a historic financial crisis that worsens the damage from the lingering public health emergency.”
She warned that a default would trigger a spike in interest rates, a sharp drop in the stock market and other financial turmoil. “Our current economic recovery would turn into a recession, with billions of dollars in growth and millions of jobs lost.”
The House will vote next week on whether to lift the $ 28 trillion debt ceiling. Republican Senate Leader Mitch McConnell as well as House Republicans have said they shouldn’t have to vote for a bill to fund the expenses of the Biden administration they oppose. Some 46 Republican senators have signed a letter saying they will not vote for a stand-alone bill that raises the ceiling.
In her editorial, Yellen reiterated the point she made in her letter to Congress that the increased authorization was not intended to facilitate additional spending but to cover commitments already made, noting that 97% of the amount had been “committed by past congresses and presidential administrations”. And “even if the Biden administration had not authorized any spending, we would still need to tackle the debt ceiling now.” “
As on any other issue, including the fascist coup attempt, Yellen calls on what Democrats call their “fellow Republicans” to uphold past standards and “paying the American bills” shouldn’t be a contentious issue. During the previous administration, that of Donald Trump, she recalled that “Congress suspended the debt ceiling three times with bipartisan support and without much fanfare. For this reason, I have no doubts that our lawmakers will tackle the debt ceiling again, but they must act quickly. “
There is an obvious contradiction here. If Yellen was convinced that the problem could be solved “without much fanfare”, she would not have found it necessary to write publicly about the problem twice in the past week, pointing to a “catastrophe” if it was not. settled.
Yellen also cautioned against any last-minute solutions. “There is a big difference between avoiding default in months or in minutes,” she wrote. In 2011, the conflict led to the downgrade of the credit rating of the United States, there was a “serious downturn in the stock market”, which resulted in “financial market disruptions that persisted for months”.
Its warnings come amid uncertainty in financial markets over the direction of the Federal Reserve’s monetary policy, which was intensified by the sharp fall in the market yesterday due to the major real estate developer’s debt crisis. Chinese Evergrande.
The Fed’s governing body will meet for two days this week where the key issue will be the timing and amount of the “cut” in its asset purchase program, currently at $ 120 billion per month, initiated in response to the collapse of financial markets. from March 2020 to the start of the pandemic.
There are divisions within the Fed between those who argue that the wind should start soon and those who fear that such a too sudden move could trigger financial turmoil, as the markets have become so dependent on the flow of money from the central bank.
Fed Chairman Jerome Powell has sought to balance the two camps. He said a decision to “cut” asset purchases by the end of the year might be “appropriate,” while insisting that this should not be taken as a signal that the Fed is prepared to raise its base interest rate from its current level near zero.
Commentators, such as former Treasury Secretary Lawrence Summers, have warned that the Fed’s current easy money policy risks creating a situation of “stagflation” – rising prices amid an economic slowdown.
Financial analyst Mohamed El-Erian repeated his previous warnings about the dangers of the Fed’s current policies in a commentary posted yesterday on Bloomberg. He called on the Fed to immediately begin tapering with the aim of completely eliminating asset purchases by the first half of next year and that it should signal a gradual rise in interest rates in the second half of the year. .
But he concluded that the Fed was more likely to take a “dovish approach” due to the extent to which “central bank liquidity boosted asset valuations” leading to a “decoupling from underlying economic fundamentals. “.
As appealing as it may sound, he continued, it was short-sighted as it allowed financial and economic risks to rise and when the Fed “finds itself forced to brake, the window to do so.” in an orderly fashion can be worrying. greenhouse.”