Gerald R. Ford School of Public Policy via Flickr

Washington, D.C. – U.S. Treasury Secretary Janet Yellen told House Speaker Nancy Pelosi Friday that unless Congress acted quickly to raise the statutory limit on the amount of money the federal government can borrow, she would be forced to “start taking certain additional extraordinary measures” to prevent the United States government from defaulting on its financial obligations. 

In a letter sent to Pelosi and other members of the congressional leadership in both parties, Yellen asserted that an increase or continued suspension of 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.”

With just days to go before the statuary suspension of the debt limit ends at noon on July 31, the need for congressional action has already become a political football. Both parties are trying to use the issue on Capitol Hill to gain leverage over the other to either stop or move through to final passage several pieces of legislation that are a top priority for the Biden Administration.

The full text of the letter is as follows:

Dear Madam Speaker:

As you know, the Bipartisan Budget Act of 2019 suspended the statutory debt limit through Saturday, July 31, 2021.  I am writing to inform you that beginning on Sunday, August 1, 2021, the outstanding debt of the United States will be at the statutory limit.  

Today, Treasury is announcing that it will suspend the sale of State and Local Government Series (SLGS) securities at 12:00 p.m. on July 30, 2021.  The suspension of SLGS sales will continue until the debt limit is suspended or raised.  If Congress has not acted to suspend or increase the debt limit by Monday, August 2, 2021, Treasury will need to start taking certain additional extraordinary measures in order to prevent the United States from defaulting on its obligations.   

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.

The period of time that extraordinary measures may last is subject to considerable uncertainty due to a variety of factors, including the challenges of forecasting the payments and receipts of the U.S. government months into the future, exacerbated by the heightened uncertainty in payments and receipts related to the economic impact of the pandemic.  Given this, Treasury is not able to currently provide a specific estimate of how long extraordinary measures will last.  However, there are scenarios in which cash and extraordinary measures could be exhausted soon after Congress returns from recess.  For example, on October 1 alone, cash and extraordinary measures are expected to decrease by about $150 billion due to large mandatory payments, including a Department of Defense-related retirement and health care investment.

In recent years Congress has addressed the debt limit through regular order, with broad bipartisan support.  I respectfully urge Congress to protect the full faith and credit of the United States by acting as soon as possible.

It is highly unlikely members in either party will allow the deadline to be reached without reaching some kind of compromise agreement to forestall the U.S. defaulting on its debt. Such a move would, most economists agree, that even a technical default would put in motion a disruption in the global financial markets of what one economist called “a global disruption of unknown and unknowable proportions.” 

Such a collapse, which would provide China an ample boost in their campaign urging the replacement of the dollar as the global reserve currency, would likely be blamed on the Republicans. Fear that it might in turn limits the ability of spending restraint advocates to argue the deadline should be allowed to come and go unless reforms are made.

This game of economic chicken has been tried before, with the first one to blink generally considered the loser.


Peter Roff is affiliated with several Washington, D.C. public policy organizations and is a former U.S. News and World Report contributing editor who appears regularly as a commentator on the One America News network. He can be reached by email at [email protected] Follow him on Twitter @PeterRoff.

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David Baker
David Baker
1 month ago

Repeal the Federal Reserve Act and repudiate our debt to these people. We’re quite capable of printing currency without interest. In fact, that’s how our economy was supposed to be operated.

Benjamin Bell
Benjamin Bell
1 month ago
Reply to  David Baker

Before paper money was backed by gold. Now its your word that you will make printed money good by saying you’re going to pay it back, because it was borrowed in the 1st place.

David Baker
David Baker
1 month ago
Reply to  Benjamin Bell

Old Tricky Dick took us off the Gold Standard, and since then it has been Katy Bar the Door for our government to spend Funny Money on their White Elephants and perks. They’ve mortgaged us and several generations with their irresponsible budgeting practices, and other largess. U.S. taxpayers don’t have a chance against this regime if they ‘follow the rules’ set forth by liberals. Hence, they’ve placed us in a corner, and Trump was one among many efforts by our citizens to free us from these tyrants.

Alfie
Alfie
1 month ago
Reply to  David Baker

Catholics have controlled the USA since 1956… Now there is not one AMERICAN on the SCOTUS… Almost all on SCOTUS are CATHOLIC “C” traitors.
And the “previously enacted expenditures.” all came from Pelosi, CATHOLIC TRAITOR. NO CATHOLIC “C” is an American. They are Catholics and have allegiance to the VATICAN , not the USA.
Have you ever heard of a CATHOLIC “C” nation that has not overspent?
Have you ever heard of a CATHOLIC “C” nation that is not corrupt?
Have you ever heard of a “C” nation that is successful?
Have you ever heard of a “C” nation that does not need to ‘export’ the illiterate ILLEGAL ALIEN CATHOLIC “C” INVADERS?
Vote for ANY CATHOLIC “C” and you vote for a traitor.
Vote for ANY CATHOLIC “C” and the borders will never be secured.

marina
marina
1 month ago
Reply to  David Baker

“our debt” We the People didn’t incurred in any debt the corrupt Congress embezzling and taxpayers money laundering schemes…

David Baker
David Baker
1 month ago
Reply to  marina

You might bring that up to our congressional representatives, because every cent they spend is our liability, and they’re exhausting our credit line with their deficits, defense expenditures, luxuries, stimulus payments and keeping illegal aliens fed, housed, educated and insured under Obamacare.

Ana Miles
Ana Miles
1 month ago
Reply to  marina

Congress gives money away, then it comes right back to their bank account.

Stephen Russell
Stephen Russell
1 month ago

Or enter Great Depression 2 ahead

David Baker
David Baker
1 month ago

It sure looks that way. This version is characterized with tens of thousands of Americans already living on the streets or in their cars before a depression is in full swing. During the 1920s, the U.S. economy was booming. Our current scenario resembles a ‘progressive’ disease.

David Baker
David Baker
1 month ago

I’m a pilot. I used to own a plane, which you can view on You Tube: just type N8872L. (I made a small fortune with that little Grumman. I started with a large fortune…) Now I’m unable to afford to fly, so I watch You Tube presentations of plane owners cavorting around the country in their private jets and high performance singles and war birds. Something is familiar about their physical appearances. It must be their noses…..

Dan Tyree
Dan Tyree
1 month ago

The commiecrats are good at spending other people’s money