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Biden, McCarthy to meet on debt limit as Yellen warns of consequences

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2023-01-20T18:23:55Z

DAKAR/WASHINGTON (Reuters) -Treasury Secretary Janet Yellen on Friday warned that the U.S. government cannot choose to pay some bills over others if Congress fails to raise the borrowing limit, as President Joe Biden and top Republican Kevin McCarthy made plans to meet to discuss the issue.

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FILE PHOTO: U.S. Speaker of the House Kevin McCarthy (R-CA) speaks to reporters at the U.S. Capitol in Washington, U.S., January 12, 2023. REUTERS/Elizabeth Frantz/File Photo

Speaking to reporters in Senegal, Yellen warned that Washington could spur a global financial crisis and undermine the role of the dollar if it does not raise the $31.4 trillion debt limit. She said the Treasury Department cannot prioritize its payments, as some Republicans have suggested.

“Treasury systems have all been built to pay our bills, to pay all of our bills when they are due and on time, and not to prioritize one form of spending over another,” she said.

Government officials and outside experts say that prioritizing certain payments over others would mark a radical departure that likely would shake global economies.

Biden, meanwhile, told a gathering of U.S. mayors that “we’re going to have a discussion” with Republican House of Representatives Speaker McCarthy about raising the U.S. debt ceiling.

McCarthy said on Twitter he would meet Biden to “discuss a responsible debt ceiling increase to address irresponsible government spending.”

It was unclear when the conversation would occur or what message Biden intends to deliver to McCarthy, who is under pressure from far-right Republicans to withhold action on a debt limit increase until significant U.S. budget cuts are first sketched out.

White House officials have previously said they will not negotiate over raising the debt ceiling, and administration officials are betting that Republicans will eventually buckle under pressure from investors and businesses worried about the prospects of default.

The U.S. government hit its $31.4 trillion borrowing limit on Thursday, a figure that reflects money already spent by the government. Yellen has informed congressional leaders that her department had begun using extraordinary cash management measures to stave off default until early June.

Yellen’s remarks came as she kicked off a 10-day trip to Africa to discuss economic growth on the continent.

But the percolating battle over the U.S. debt limit later this year already is rattling markets and investors. They are worried over the prospects of an historic default by Washington if budget disagreements cannot be ironed out.

Yellen said in an interview with CNN that a potential U.S. default could damage the global economy.

“It could cause a global financial crisis. It would certainly undermine the role of the dollar as a reserve currency that is used in transactions all over the world,” she said, adding that in such a scenario many people would lose their jobs and see their borrowing costs rise.

Yellen noted the debt ceiling needs to be raised to cover borrowing on spending already authorized by Congress.

“It is simply about paying bills Congress has already authorized,” she told CNN. “This is something you can’t negotiate over or bargain about.”

Former President Donald Trump, who already launched a 2024 campaign for the White House, urged fellow Republicans to back away from seeking cuts that he said would “destroy” the popular Social Security program for retirees and the Medicare health program for those age 65 and older.

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