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Yellen urges Congress to raise the debt ceiling, warns Pelosi of the early expiry of extraordinary measures

U.S. Treasury Secretary Janet Yellen says Jan.

Shawn Thew | Reuters

Treasury Secretary Janet Yellen warned House Speaker Nancy Pelosi on Wednesday that the mere specter of US bankruptcy could have dire consequences for US financial markets and urged the Democratic leadership to raise or suspend the debt ceiling as soon as possible.

Yellen reiterated that lawmakers had some time in October before the ministry exhausted its expanded efforts to prevent a historic default.

"A delay that challenges the federal government's ability to meet all of its commitments would likely cause irreparable damage to the US economy and global financial markets," Yellen said in a letter on Wednesday in Pelosi, California.

“We have learned from previous dead ends with the debt limit that waiting until the last minute to suspend or raise the debt limit seriously damages business and consumer confidence, increases short-term borrowing costs for taxpayers, and adversely affects the creditworthiness of the business community United States can affect States, "she added.

Most economists say that a US default could trigger a severe economic downturn and skyrocket borrowing costs across the American economy. Despite the dire consequences, the legislature has made little progress.

The cap prevents the Treasury Department from issuing new bonds to fund government activities once a certain debt level or date is reached. That level reached $ 22 trillion in August 2019 and was suspended until the end of July 2021.

The new debt limit includes Washington's additional borrowing since the summer of 2019. The Congressional Budget Office estimated in July that the new limit will likely be just above $ 28.5 trillion.

When asked about Yellen's letter during her weekly press conference, Pelosi said Wednesday that the Democrats would not risk "the full faith and credit" of the US government.

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She called on Republicans to support raising the debt ceiling, as the Democrats did under former President Donald Trump when the federal government ran into more than $ 7 trillion in debt.

"It has to happen," she said. "Hopefully [Republicans] will be responsible." The House spokesman added that Democrats will not include a debt ceiling increase in their $ 3.5 trillion reconciliation bill, which requires a simple majority.

Votes to raise the debt ceiling do not entitle to additional government spending. An increase allows the Treasury Department to continue paying its previous expenses, similar to the way consumers pay credit card bills from the previous month.

Senate Majority Leader Chuck Schumer, D-N.Y., Declined Wednesday to answer a question about whether the chamber would add a debt ceiling to an ongoing resolution.

"We have different options for how we want to reach the debt limit," he said. "We have to do it."

Since the Treasury Department cannot issue new debt until Congress suspends or increases the ceiling, Yellen and her deputies have taken "extraordinary measures" to save cash and avoid exceeding the federal debt limit.

The extraordinary measures allow the Treasury Department to repay certain investments in federal pension programs and stop new ones to generate cash without increasing overall debt. But when these methods are exhausted, there is no backstop.

Unless Congress addresses the cap, payments for Social Security, Medicare, military spending, interest on US debt, and other obligations will simply be suspended.

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