The U.S. government will have to default on some payments if Congress fails to raise the national debt ceiling before June, Treasury Secretary Janet Yellen said.
“If Congress fails to do that, it really impairs our credit rating. We have to default on some obligation, whether it’s Treasuries or payments to Social Security recipients,” Yellen said on Friday in an interview with Bloomberg.
“That’s something America hasn’t done since 1789,” she continued, referring to a time when the new-born United States failed to pay back money it borrowed to finance the war against the British Empire. “And we shouldn’t start now. So we’ve not discussed what to do.”
When asked about the speculation that her department would prioritize payments of interest and principal on Treasury securities in a default scenario, Yellen said the White House has never reviewed or approved such a plan.
“My understanding—I was at the Fed in 2011—is that this plan was never presented to the president and never approved,” Yellen told Bloomberg. In 2011, she was serving as vice chair of the Federal Reverse.
When asked if she would now present that plan to prioritize Treasuries to the president, Yellen replied, “We are working full time to work with Congress to raise the debt ceiling. That’s where our focus is.”
Yellen Warns of Credit Downgrade
The remarks comes after she argued that a U.S. government default might trigger a downgrade of its credit rating and weaken consumer confidence, similar to what happened in 2011.
“A default would threaten the gains that we’ve worked so hard to make over the past few years in our pandemic recovery. And it would spark a global downturn that would set us back much further,” Yellen said Thursday in Japan, where she was attending a meeting of finance chiefs and central bankers of G7 countries.
“It would also risk undermining U.S. global economic leadership and raise questions about our ability to defend our national security interests,” she added.
Yellen pointed to the 2011 debt ceiling crisis that prompted Standard & Poor’s to lower the United States’ long-held top-notch AAA sovereign credit rating to AA-plus. She warned that another downgrade would drive up interest rates for consumers and companies seeking loans.
“We could see a rise in interest rates drive up payments on mortgages, auto loans, and credit cards. We are already seeing spikes in interest rates for debt due around the date that the debt limit may bind,” she said.
“The U.S. Congress has raised or suspended the debt limit about 80 times since 1960. I urge it to act quickly to do so once again.”
Democrats, Republicans Blame Each Other
Yellen’s comments echo those of President Joe Biden, who criticized Republican members of Congress for wanting to tie the debt limit increase to deficit-savings measures.
“They’re literally—not figuratively—holding the economy hostage by threatening to default on our nation’s debt,” Biden said Wednesday of what he called “extreme MAGA Republicans.”
Although the Biden administration insists that Congress pass a “clean” debt ceiling increase, almost every major debt ceiling agreement in the past 30 years had at least some kind of deficit-reduction law attached to it, including the 1993 Deficit Reduction Act under the Clinton administration, and the 2010 Pay-As-You-Go Act and the 2011 Budget Control Act under the Obama administration.
Republican congressional leaders remain cautious on defaulting national debt, as the nation’s top Republican, former President Donald Trump suggested that it’s better to let the U.S. government default than passing a budget that doesn’t include spending cuts.
“I say to the Republicans out there—Congressmen, Senators—if they don’t give you massive cuts, you’re going to have to do a default,” Trump said Wednesday during a town hall event hosted by CNN in New Hampshire.
“I don’t believe they’re going to do a default because I think the Democrats will absolutely cave because you don’t want to have that happen,” he told an undeclared voter in the audience. “But it’s better than what we’re doing right now, because we’re spending money like drunken sailors.”
Speaking the day after the Trump town hall, Speaker of the House Kevin McCarthy (R-Calif.) said his party is working to avoid a default, while Democrats are pushing the nation closer to one.
“The only thing I see right now is that the Republicans made sure default is not on the table. We’ve raised the debt limit,” he said, reported The Hill.
“The only person talking about default right now is President Biden. His actions, he’s ignored this problem, just like he’s ignored the border, that means more Americans are gonna die from fentanyl. You had 11,000 people just yesterday come across.”
Article cross-posted from our premium news partners at The Epoch Times. Image via Mark Warner, CC BY 2.0, via Wikimedia Commons.
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Yellen is a scumbag liar!
Last year, the federal government received $4.9T in tax revenue, and spent $400b in servicing the debt. The “entitlement spending” (social security, Medicare, Medicaid and debt servicing payments) are not discretionary but “automatic pilot”.
Again, the ONLY way the US government would default is if they purposefully and unlawfully diverted the funds
Default!!
This Administration has made this country a total mess! They don’t know what they are doing and now that they have mucked up the economy and everything we once knew as manageable, the don’t know which way to turn to fix it.
They are scaring the public with no social security payments and the like, but they need to cut the ‘freebees’ to those that are not American citizens and in this country outside to the laws of immigration.
Fear tactic and they know it. SS is the last thing to cut as are bonds. First thing is “climate” expenditures, loan forgiveness to deadbeat students, thousands of armed IRS agents, the epa and Dept of Education and other departments that don’t do anything helpful and may only exist on paper.
Taxes are still being paid and collected, the uniparty just wants total control of the narrative. Fear is the tool they think is necessary. It is road apples that they are trying to persuade us that we can’t live without. Screw them all!
I guess they want the Class Action lawsuits to further put the country in the crapper. Just try not paying Entitlements.
Let’s default on all the payments to Ukraine first.
Instead of hitting the poorest of the poor via Social Security, why dont the govt stop ‘SPENDING’ like fools, try stopping all the Billions thats going to that huge money pit called Ukraine, try cutting off the multiple Countries thats on the govt spigot for a change. anything other than hurting the poor all the time when you dont get your way on spending like fools with no repercussions for once.
Well, to answer Yellen’s question of which debt to default on first, how about defaulting on ALL of the new pork and spending bills enacted since Biden took office?
I say we default on paying ALL government officials Elected and non-elected.
BS. They just keep “creating” money and giving it to Ukraine.
One place the US can save a bunch of money is with illegal aliens, I talking in the $ billions. We need to STOP giving the illegal aliens all of the free shit. As an added benefit, without free shit, the vast majority of the illegal aliens will self-deport.
I say shut down the military. For all the good they’re doing us, we don’t need them. Our country has already been invaded.
Yellen is lying (again). Credit ratings suffer from *non-payment* of debts, not from crossing the ephemeral Debt Limit line. As long as USA continues to pay actual debt obligations (which do not include appropriations for *future* purchases — many of which can be deferred without violating the legislation), our credit rating will be fine. The Debt Limit Scare is a scam the “Biden Administration” is using to allow even more profligate spending. Don’t fall for this.
You see they have it exactly backwards.
We have a spending problem, not a borrowing problem.
We have to fix the spending side before we deal with the borrowing side,
FIRST we have to recognize the problem we have – out of control spending.
SECOND we have to realize that we are spending addicts and need help – have you SEEN the “inflation reduction act?”
THIRD we have to have a plan that CUTS our spending – including not taking on new debt, and cutting corners on spending across the myriad of departments and programs.
FOURTH once we implement that cost cutting plan, we can discuss the borrowing and debt payoff plan
Oh my gosh, the US government will default on its debt if congress can not agree on a new spending ceiling! Generating the latest hysteria by government actors and making its way to the top on MSM and the internet blogosphere.
Some confusion on the debt ceiling lies with payment of public debt vs the continued funding by discretionary spending for many government programs.
Some constitutional scholars believe that article 4 of the 14th Amendment covers not only the civil war debt (the original intent of article 4 of the 14th Amendment), but all future debt (not spending) incurred by the federal government.
Section 4 of the 14th Amendment:
The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned. But neither the United States nor any State shall assume or pay any debt or obligation incurred in aid of insurrection or rebellion against the United States, or any claim for the loss or emancipation of any slave; but all such debts, obligations and claims shall be held illegal and void.
‘The validity of the public debt of the United States … shall not be questioned.’
There is additional federal law 31 U.S. Code § 3123 – Payment of obligations and interest on the public debt. That guarantees against default.
(a)The faith of the United States Government is pledged to pay, in legal tender, principal and interest on the obligations of the Government issued under this chapter.
(b)The Secretary of the Treasury shall pay interest due or accrued on the public debt. As the Secretary considers expedient, the Secretary may pay in advance interest on the public debt by a period of not more than one year, with or without a rebate of interest on the coupons.
The phrases ‘pledged to pay’ and ‘shall pay’ are final and settled by law, default on government Treasury obligations is prohibited. So a default on federal debt is unlikely.
However, many government programs that rely on appropriations, the root cause of overspending, will be left unfunded. Accordingly without the Democrats and Republicans agreeing on a bill to raise the debt limit. The federal government will be required to pay only principal and interest on its Treasury debt obligations. Tell granny not to worry, Social Security has its own separate federal guarantees for payment and is not discretionary.
If you happen to be one who believes in small government, peace and personal prosperity this could be a win, win situation. Reducing the size of government and overspending by ‘da fault’ of Congress not to act.
Default on the Biden Presidency!
This is patently false! The debt ceiling and one’s ability to make payments on the debt are not tied together at all. There is plenty of revenue, they will just have to cut money from all the non-sensible spending and re-direct it to the debt. Last time I checked if you are in great debt and go to a bank to ask for more money they will laugh you out of the place. This woman is not qualified to run a piggy bank!
Ok, I’ll play. Top Ten things the US Government should “default” on first, to avoid World War III:
1. Aid to Ukraine: $1 to $50 billion.
2. Annual aid to all other Foreign countries: $100 billion.
3. The CIA (including redacted budget): $15 billion
4. The FBI: $10 billion.
5. Elon Musk’s annual welfare check: $10 billion.
6. The cumulative annual welfare for all other mega-rich ayholes (besides Elon Musk, and not counting the FED’s cabal of private banks): $90 billion.
7. All annual interest payments to the FED: $300 billion, less the $200 billion the FED writes off (only fair to write off some since the FED created from thin air the money it used to buy T-bills in the first place…eyeroll), so $100 billion net.
8. The NIH, FDA, and CDC: $100 billion.
9. The EPA: $25 billion
10. MEDICAID–50% in claims of which are fraud, so it’s a dumpster fire: $700 billion.
That’s about $1.2 trillion in easy-choice defaults, and not only will the Chi-Com Loan Sharks not try to bury us in wet cement, but the US Economy would grow by double digits.
Yes, vote for me for President.