The Treasury Department estimates it would exhaust the measures allowing the U.S. government to pay its bills on October 18. if Congress does not act to raise or suspend the debt limit. If that happens, the country could go into default for the first time in U.S. history.
Senate Republicansthat would have also suspended the debt limit through December 2022. They argued Democrats can raise the debt ceiling on their own, but Democrats had been calling for a bipartisan approach as was done during the Trump administration.
In a letter to congressional leaders Tuesday, Treasury Secretary Janet Yellen said once its so-called extraordinary measures being used to pay the bills are exhausted, they expect the Treasury to be left with very limited resources that would become depleted quickly. She also noted that the government's cash flows vary, so this was just their best estimate.
Addressing the debt ceiling would avert a "catastrophic event for our economy," Yellen said Tuesday in an appearance before the Senate Banking Committee.
"The full faith and credit of the United States would be impaired, and our country would likely face a financial crisis and economic recession as a result," Yellen said of default. "We must address this issue to honor commitments made by this and prior congresses."
A default would affect millions of Americans across the country.
"Nearly 50 million seniors could stop receiving Social Security payments or see them delayed, our troops would not know when their paychecks would come. Thirty million families who rely on the Child Tax Credit would not receive them on time, unemployment would surely rise," Yellen said.
If the government defaults, or even appears likely to default by waiting until the last minute to address the issue, Yellen warned, interest rates could spike, leading to increases in interest payments on the government debt. That would also have a direct impact on Americans' borrowing.
"The interest payments of ordinary Americans on their mortgages and on their cars and on their credit cards would all go up in line with higher Treasury borrowing costs and it would increase our spending, absolutely," Yellen said.
The Treasury Department has been usingsince August to pay the bills after the previous suspension of the debt limit passed in 2019 expired at the end of July. The debt limit kicked back in at roughly $28.5 trillion.
On Tuesday, Senator Chuck Schumer announced that he would ask for unanimous consent for the Senate to hold a vote to increase the debt limit. That would allow Senate Democrats to raise the debt limit with just 50 votes and not need any Republican support.
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