US Treasury Secretary Janet Yellen said in an interview with the Associated Press on Saturday that she expects Congress to eventually vote to raise America’s debt ceiling, but calls from House Republicans for spending cuts in return for a hike are “a very irresponsible thing.” ‘ and risk a ‘self-imposed catastrophe’ for the global economy.
The Biden administration and Republican lawmakers have been at odds over how to increase the government’s legal borrowing capacity. On Thursday, the government bumped into the $31.381 trillion debt ceiling, forcing the US Treasury to take “extraordinary” accounting steps to keep the government afloat.
When asked in the interview conducted during her trip to Africa about such talk of refusing approval for a higher debt ceiling unless it would be accompanied by spending cuts, Yellen called that stance “very irresponsible” and said it could have serious repercussions even before the “Day of Judgment”.
“It’s possible that the markets are quite concerned about whether or not the US will pay its bills,” she said, pointing to the negative economic impact of a 2011 debt showdown.
As for a possible default, she said, it would “wreak a self-imposed disaster on the United States and the global economy.” The Treasury Department’s extraordinary moves so far mean the US government should be able to operate until some point in June, when the limit would need to be increased to avoid potentially significant economic damage.
Yellen said she did not speak to US Rep. Kevin McCarthy, the newly elected Republican House Speaker. McCarthy has yet to formulate the scope and target of the spending cuts he believes 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 coupled with cuts — in borrowing capacity, saying the risks of a prolonged impasse could lead to a deep recession that would echo dangerously around the world if US credit confidence falters -Government.
“Congress needs to understand that this is about paying bills that have already been incurred by decisions of this and previous Congresses, not new expenses,” Yellen said. She said she believes in making sure the national debt is sustainable, “but paying our bills or not is not negotiable.”
Despite the dire warnings, Yellen believes the situation will eventually ease up because lawmakers can assess the escalating danger if the federal government were unable to pay all of its bills: collapsing financial markets, mass layoffs and an economic downturn that is sweeping America could jeopardize place in the world hierarchy.
“I think we’ll find a way in the end,” Yellen said.
The Treasury Secretary said the White House and officials from her department are “meeting to discuss possible avenues forward.” And we will be having conversations with members of Congress to try and understand what they see as the way forward.”
The White House said Friday Biden looks forward to sitting down with McCarthy to discuss a range of issues. But his testimony came without an invitation or a date for a meeting.
Yellen said the government’s position remains not to negotiate the debt limit, but she did not elaborate on possible strategies being discussed in the White House to ensure the ceiling is raised.
“Congress has to do this,” she said. “It has to be done. It can’t be something dependent on cutbacks.”
Yellen sat down for the Saturday interview amid a cross-continent trip that saw her meet with her Chinese counterpart in Switzerland before heading to Senegal, Zambia and South Africa.
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 these nations the drivers of growth in the coming decades. At a summit of African nations held in Washington last month, Biden said he would visit the continent this year to express a desire to increase engagement with the United States.
Prior to the interview, Yellen traveled to the island of Goree in Senegal and toured a building known as the House of Slaves, which was a center of the Atlantic slave trade that shaped much of American history.
The economist and former Federal Reserve Chair has stressed her desire to reduce racial and income inequality, an element of systemic racism linked to slavery and its segregation consequences. For Democrats, how to bridge this gap is not just a matter of social justice but of political pragmatism, as black voters are a key group to winning the election.
Yellen said the government has not turned to reparations — payments and other programs for the descendants of slaves — to address inequality.
“The government has not accepted reparations as part of the response,” Yellen said, adding, “We have a program to try to address these issues that includes many positive steps and adjustments and increasing opportunities.”
America is trying to make a moral appeal to African countries by saying that US aid and loans will be transparent and fair in a way that Chinese investments have not been.
Relations between the US and China – the world’s two largest economies – have taken on an increasingly antagonistic streak amid the geopolitical fallout of China’s friendship with Russia, the persistence of the coronavirus and an era of open globalization that has given way to national security priorities.
The last two US presidential administrations have questioned China’s trade practices, with the Biden government limiting exports of advanced computer chips while attempting to boost the US sector.
“This is not a competition with China – we want to deepen our commitment in Africa,” said Yellen. “We want to make sure we don’t create the same problems that Chinese investments have sometimes created here. That we have transparency, that we have projects that bring really broad benefits to the African people and don’t leave behind unsustainable debt.”
Yellen said she was struck by “a sense of dynamism and optimism from all government officials and individuals I have met” during her time in Senegal. She referred to women entrepreneurs who received seed capital from the Senegalese government.
“We saw a kind of vibrancy in the country and a spirit of doership,” Yellen said. “They have very innovative and original ideas about what they can do to meet local needs and easily find a global market.”
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Associated Press writer Josh Boak in Baltimore contributed to this report.
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