Treasury Secretary Janet Yellen has warned that failure to increase the United States debt ceiling could have dire repercussions.
The federal government could run out of money by early June if no agreement is reached to increase its borrowing capacity.
The federal government may not be able to make wages, welfare, and other payments at that time.
“Congress is responsible for doing this. If they fail to do so, we will be responsible for an economic and financial calamity,” she said.
In a Sunday interview with ABC News, Ms. Yellen stated that negotiations over the debt ceiling should not be conducted “with a gun to the head of the American people.”
However, time is running out for a resolution.
President Biden will meet with Republican leaders on Tuesday to request an increase to the current $31.4tn (£25.12tn) limit.
Typically, Congress ties approval of a higher debt ceiling to budget and expenditure restrictions.
Last month, the House of Representatives passed a bill to raise the debt ceiling, which is presently equal to approximately 120% of the nation’s annual economic output, but the bill also included sweeping spending cuts over the next decade.
President Biden wants Congress to consent to an unconditional debt ceiling increase. President Biden has stated that he will not negotiate over the increase, but will discuss budget reductions once the issue has been resolved.
Ms. Yellen stated that the lack of bipartisan agreement on the issue could result in a “constitutional crisis”.
The Biden administration is evaluating whether the Constitution permits the president to continue issuing new debt without the consent of Congress but will work this week to avoid such a situation.
“We should not reach a position where we must question whether the president can continue to issue debt. This would constitute a constitutional emergency, Ms. Yellen told ABC.
Negotiations have come close 78 times since 1960 to increase, extend, or amend the debt ceiling.
Ultimately, the prospect of a government default on payments, including debt obligations, has always led to compromise. The US has never defaulted, which would destabilise global financial markets and have far-reaching economic effects.
In a letter to Congress last week, Ms. Yellen noted that postponing a resolution also had negative repercussions.
We have learned from past debt limit impasses that waiting until the last minute to suspend or increase the debt limit can cause serious harm to business and consumer confidence, raise short-term borrowing costs for taxpayers, and negatively impact the credit rating of the United States,” she wrote.
