U.S. Treasury Secretary Janet Yellen said in an Associated Press interview Saturday she expects Congress will ultimately vote to raise America’s debt limit, but demands by House Republicans for spending cuts in return for backing an increase are “a very irresponsible thing to do” and risk creating a “self-imposed calamity” for the global economy.
The Biden administration and Republican lawmakers have been at loggerheads over how to increase the government’s legal borrowing capacity. On Thursday, the government bumped up against the $31.381 trillion debt cap, forcing the U.S. Treasury Department to take “extraordinary” accounting steps to keep the government running.
Asked in the interview, conducted during her trip to Africa, about such talk of withholding approval for a higher debt limit unless there are accompanying spending cuts, Yellen called that stance “a very irresponsible thing to do” and said it could have serious consequences even before “the day of reckoning.”
“It is possible for markets to become quite concerned about whether or not the U.S. will pay its bills,” she said, pointing to the negative economic impacts of a debt showdown in 2011.
As for a potential default, she said, that “would impose a self-imposed calamity in the United States and the world economy.” The Treasury’s extraordinary steps so far mean that the U.S. government should be able to operate until some point in June, when the limit would need to be increased to avoid what could be significant economic damage.
Yellen said she has not spoken with the U.S. Rep. Kevin McCarthy, the newly elected Republican speaker of the House. McCarthy has yet to spell out the size and target of the spending cuts that he contends are needed to put the federal government on a healthier financial path.
President Joe Biden and administration officials have called for a “clean increase” — not linked to cuts — to the borrowing capacity, saying that the risks of an extended impasse could lead to a deep recession that would echo dangerously worldwide if faith is lost in the credit of the U.S. government.
“Congress needs to understand that this is about paying bills that have already been incurred by decisions with this and past Congresses and it’s not about new spending,” Yellen said. She said she believes in making sure that government debt levels are sustainable, “but it can’t be negotiated over whether or not we’re going to pay our bills.”
Despite the dire warnings, Yellen said she believes the situation ultimately will be defused because lawmakers can appreciate the escalating danger if the federal government was unable to pay all of its bills: crashing financial markets, mass firings, and an economic downturn that could jeopardize America’s place in the world hierarchy.
“I believe in the end we will find a way around this,” Yellen said.
The treasury secretary said that White House and officials from her department “are meeting to discuss possible paths forward. And we will have discussions with members of Congress to try to understand what they see as a path forward.”
The White House said Friday that Biden “looks forward” to sitting down with McCarthy to discuss a range of topics. But its statement came with no invitation or a date for a meeting.
Yellen said the administration’s position remains to not negotiate over the debt limit, but she did not detail possible strategies being discussed inside the White House to ensure the ceiling is raised.
“Congress has to do it,” she said. “It has to be done. It can’t be something that’s contingent on cuts.”
The Biden administration is trying to signal its support for improving the economies of African countries, many of which have young populations that will eventually make those nations the drivers of growth in decades to come. At an African nation summit held in Washington last month, Biden said he would visit the continent this year in a sign of the desire to increase engagement with the United States.
Before the interview, Yellen went to Senegal’s Goree Island, touring a building known as the House of Slaves that was a center for the Atlantic slave trade that defined much of American history.
The economist and former Federal Reserve chair has emphasized her desire to reduce racial and income inequality, an element of the systemic racism tied to slavery and its aftermath of segregation. For Democrats, the issue of how to bridge that divide is not just a matter social justice but political pragmatism, given that Black voters are a key constituency for winning elections.
Yellen said the administration has not turned to reparations — payments and other programs intended for the descendants of slaves — to address the inequality.
“The administration has not embraced reparations as part of the answer,” said Yellen, adding that “we have a program to try to address these issues that involves many positive steps and adjustments and increasing opportunity.”
America is trying to appeal to African countries on moral terms, saying that aid and loans from the U.S. will be transparent and fair in ways that Chinese investments have not been.
Relations between the U.S. and China — the world’s two largest economies — have taken on an increasingly antagonistic streak amid the geopolitical fallout from China’s friendship from Russia, the persistence of the coronavirus and an era of open globalization that has given way to national security priorities.
The past two U.S. presidential administrations have challenged China’s trade practices, with the Biden administration limiting the export of advanced computer chips as it simultaneously tries to boost the U.S. sector.
“This is not competition with China — we want to deepen our engagement with Africa,” Yellen said. “We want to make sure that we don’t create the same problems that Chinese investment has sometimes created here. That we have transparency, that we have projects that really bring broad based benefits to the African people and don’t leave a legacy of unsustainable debt.”
Yellen said she had been struck during her time in Senegal by “a sense of dynamism and optimism among all of the government officials and private sector people that I’ve met with.” She pointed to female entrepreneurs who received seed money through the Senegalese government.
“There’s a kind of vibrancy about the country and a can-do spirit that we saw,” Yellen said. “They’re coming up with very innovative and original ideas about what they can do to both satisfy local needs and could easily find a global market.”