Yellen Says Republican Debt Ceiling Plan ‘Risky and Dangerous’

Senators received no assurance from Janet Yellen, Treasury Secretary of the Treasury, that a Republican plan to prioritize the payment of the nation’s bills to avoid default could work due to the size of the government’s payment operation.

“There is a reason that Treasury secretaries of both parties have rejected this incredibly risky and dangerous idea, and it’s never been tried before. I cannot give any assurances about the technical feasibility of such a plan,” Yellen informed the Senate Finance Committee of her views on March 16.

Rep. Tom McClintock (R.Calif.) introduced the Default Prevention Act. This would allow the government’s payment of high-priority obligations to continue in the event that the nation reaches its statutory debt limit.

According to the law proposed, payment of interest on the national debt would be prioritised over payments for Social Security benefits. Members of Congress will not receive any payments.

“The government on average makes millions of payments each day and our systems are built to pay all of our bills on time and not to pick and choose which bills to pay,” Yellen said.

“That would be an exceptionally risky, untested, and radical departure from normal payment practices of agencies across the federal government.”

Yellen stated that the Republican plan of prioritizing payments, if implemented, would guarantee that China, which holds a significant amount of U.S. debt would be paid first to Social Security recipients.

She called the plan “default by another name.”

The remarks of the secretary echo her March 9 comments made to the House Ways and Means Committee. This committee is currently considering the Default Prevention Act. 

The debt ceiling, which is the legal limit on the total amount of debt that the government can keep at any given time, is the debt ceiling. It stands at $31.4 trillion. The limit must be increased because the country has almost always had a deficit budget. This will allow the government to continue spending money that Congress has authorized.

America approached the debt ceiling Jan. 19, but it avoided defaulting on its obligations by taking preventative measures. “extraordinary measures.”

According to the Congressional Budget Office, these measures would be exhausted by the end of summer.

On February 1, President Joe Biden (R-Calif.), met with House Speaker Kevin McCarthy (R.Calif.) to discuss raising the debt limit, but they did not reach an agreement.

McCarthy insists on future spending reductions in exchange for any increase of borrowing. Biden has refused negotiations on raising the limit as default would expose the whole faith and credit the United States.

During negotiations to raise the debt ceiling, the idea of prioritizing bill payment has been discussed.

The Senate Finance Committee heard from Jack Lew, the former Treasury Secretary. He said that the scheme would not work.

“Well, Mr. Chairman, I have to tell you, I do not believe there is a way to pick and choose on a broad basis,” Lew responded to a question.

“The system was not designed to be turned off selectively. So anyone who thinks that it can be done just does not know the architecture of our multiple payment systems, which are very complex.

“They were created to pay our bills. They were not made to not pay our bills.”

Yellen told the current Finance Committee that refusing to increase the debt ceiling is not an option.

“It is essential that Congress recognizes that raising the debt limit is their responsibility in order to preserve the full faith, credit and safety of the United States.” she said.