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THURSDAY, October 06, 2022
Treasury Secretary Yellen says debt ceiling should be permanently abolished

Treasury Secretary Yellen says debt ceiling should be permanently abolished

FRIDAY, October 01, 2021

WASHINGTON - Treasury Secretary Janet Yellen on Thursday said lawmakers should abolish the legal limit on how much treasury can borrow to meet the federal governments payment obligations, pushing lawmakers to eliminate the potential threat of a U.S. default.

Speaking to the House Financial Services Committee, Yellen said the current debt ceiling law can prove "very destructive" by creating a legal debt limit that has to be raised separate from what Congress has already ordered the federal government to spend. Treasury is currently running out of "emergency measures" to pay its obligations after the most recent suspension of the debt ceiling lapsed in August.

Congressional Republicans have refused to help Democrats raise or suspend the borrowing limit even though they supported lifting the borrowing cap during the Trump administration.

"When Congress legislates expenditures and puts in place tax policy that determines taxes, those are the crucial decisions Congress is making," Yellen told Rep. Sean Casten, D-Ill. "If to finance those spending and tax decisions, it's necessary to issue additional debt, I believe it's very destructive to put the president and myself - the treasury secretary - in a situation where we might not be able to pay the bills that result from those past decisions."

Yellen's new statements about abolishing the debt limit come as Treasury officials have instructed federal agencies to review their spending estimates for October, two administration officials familiar with the matter said, as the U.S. government is increasingly at risk of running out of cash to meet its payment obligations. Officials in Treasury's Bureau of the Fiscal Service have told federal agencies to scrutinize their estimates for outgoing expenditures and incoming revenue to ensure they are as precise as possible for October, the officials said. Should Congress fail to raise or suspend the debt ceiling, Yellen has said that the U.S. will by Oct. 18 run out of flexibility to ensure it meets all of its payments.

The request from treasury officials underscores the administration's concerns about the debt ceiling cliff, as congressional Republicans have refused to help Democrats avoid a likely national or international financial calamity.

Yellen and treasury officials have stressed that it is highly difficult to estimate the precise "X Date" at which point Treasury will have exhausted its "emergency measures" and no longer be able to guarantee it can cover payments. Breaching the debt ceiling could lead to a cessation or reduction of critical government payments - like Social Security for millions of U.S. seniors - or a default on U.S. debt. Treasury officials want to have the best possible sense of how much money they are expecting the U.S. agencies to take in and spend in the following weeks, given that a miscalculation of no consequence in normal budget times could throw off their cash balance estimates at this critical juncture.

"It's more important than ever that this is right," said one senior administration official, who like the other spoke on the condition of anonymity to discuss internal processes.

A Treasury spokesman said in a statement that it is standard for the department to be in close communication with agencies, including when Congress is debating how to handle the debt limit.

"As this process moves forward, the Treasury Department will continue to engage with agencies to ensure we have the most up to date information on expenditures and cash balances," the statement said.

Congress is now planning a vote on Thursday with just hours to spare to avert was a shutdown of the federal government. But the measure to suspend the debt ceiling standoff removed has been from that legislation. Congressional Republicans have been adamant that Democrats approve the debt ceiling increase with no GOP votes. Democrats have criticized that approach, given that 97% of U.S. debt was accrued before President Joe Biden took office.