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Janet Yellen Says U.S. Could Run Out Of Cash To Pay Its Bills In Less Than 3 Weeks

Sep 28, 2021
Originally published on September 28, 2021 4:28 pm

Treasury Secretary Janet Yellen warned lawmakers Tuesday that the federal government could run short of cash to pay its bills by Oct. 18 unless Congress acts quickly to increase the government's borrowing authority.

The warning, at an appearance before the Senate Banking Committee, comes amid a standoff in Congress over the so-called debt ceiling. Senate Republicans blocked a measure to increase or suspend the debt ceiling on Monday.

Yellen said the exact date was subject to change given the unpredictability of the government's cash flows. But she made it clear that failure to clinch a deal by mid-October would lead to the first default in U.S history, an event she has described as "catastrophic" for the economy.

"It would be disastrous for the American economy, for global financial markets, and for millions of families and workers," Yellen told senators.

She warned that Social Security benefits, child tax credits and paychecks for the military could all be jeopardized if the federal government is unable to borrow more money.

Yellen cautioned that even flirting with a default could rattle financial markets. She recalled an earlier standoff during the Obama administration in 2011 when Congress waited until the last minute to raise the debt limit, resulting in higher borrowing costs for both the government and consumers.

"This would be a manufactured crisis we have imposed on this country," Yellen said. "It would be a self-inflicted wound of enormous proportions."

Sen. John Kennedy, R-La., pressed Yellen on why Democrats don't simply raise the debt ceiling on their own, using a procedural move to sidestep the need for GOP support.

"Why don't y'all just do it and then we don't have this fight?" Kennedy asked. "Let's go have a cocktail."

Sen. John Kennedy, R-La., said Democrats can deal with the debt ceiling on their own through reconciliation, freeing up the Republicans to get a cocktail.
Kevin Dietsch / Getty Images

Democrats pushed back, noting that more than a quarter of the federal debt that the government needs to pay was accumulated during the Trump administration.

"I wonder if Secretary Yellen takes you up on that offer to go get a cocktail if you would pay or you'd skip out on paying the bill and expect Secretary Yellen to pay," committee Chairman Sherrod Brown, D-Ohio, asked Kennedy.

There were signs the political stalemate is making investors nervous at a time when high inflation and the continuing pandemic are already hitting markets. Stocks fell sharply Tuesday while the yield on government bonds increased.

Powell pressed on Fed's stock trading controversy

Federal Reserve Chairman Jerome Powell, who also appeared before the committee, echoed Yellen on the importance of avoiding a government default.

Powell was also pressed about the recent revelations that two regional Federal Reserve bank presidents actively traded in securities last year, while the central bank was deeply involved in financial markets.

Dallas Fed President Robert Kaplan and Boston Fed President Eric Rosengren both announced their retirements on Monday. While both men have defended their trading as in compliance with the Fed's ethics rules, Powell acknowledged those rules need to be tightened

"The appearance is just obviously unacceptable," Powell said. "Our need to sustain the public's trust is the essence of our work."

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ARI SHAPIRO, HOST:

A simmering fight over the government's credit card is starting to boil over on Capitol Hill, and there's a growing chance that ordinary Americans might get burned. Treasury Secretary Janet Yellen warned today that unless Congress acts quickly, the government could run out of cash to pay its bills in less than three weeks. Senate Republicans have been blocking efforts to raise the debt ceiling and allow the government to borrow more money. And with time running short, Wall Street investors are starting to get nervous.

NPR's Scott Horsley joins us now. Hi, Scott.

SCOTT HORSLEY, BYLINE: Hi, Ari.

SHAPIRO: The Treasury secretary has been urging lawmakers to increase the government's credit limit for some time now, so what's different about today's warning?

HORSLEY: Well, the calendar is coming into sharper focus, and the fuse is getting shorter. You know, Ari, Congress, like a lot of us, needs a deadline before they do anything oftentimes. And until now, it's been hard for the Treasury secretary to pinpoint when that deadline is when the government will run short of cash. But today, Yellen put a tentative date on it - October 18. She told a Senate committee if lawmakers don't authorize additional borrowing by that time, the government may not have enough cash to pay all the people it owes, something that's never happened before.

(SOUNDBITE OF ARCHIVED RECORDING)

JANET YELLEN: It would be disastrous for the American economy, for global financial markets and for millions of families and workers whose financial security would be jeopardized by delayed payments.

HORSLEY: We're talking about Social Security recipients, Medicare providers, lots of federal employees, even members of the military who might not get paid on time next month unless Congress OKs additional borrowing.

SHAPIRO: Last night, Senate Republicans blocked a measure that would have lifted the debt ceiling, so how are they responding to this pressure?

HORSLEY: Senate Republicans acknowledge that the debt ceiling needs to be raised, but they're not willing to lift a hand to help out. Instead, they say Democrats need to do this on their own. Basically, they argue, if Democrats are willing to push through an aggressive spending agenda without GOP support, they should be willing to raise the debt ceiling the same way. Here's Louisiana Republican John Kennedy.

(SOUNDBITE OF ARCHIVED RECORDING)

JOHN KENNEDY: I understand why politically you folks want to have Republican fingerprints on the spending fiscal knife, but do you really - is your politics so important that you want to gamble here?

HORSLEY: Now, one could argue it's the Republicans who are gambling with the full faith and credit of the federal government. In fact, that is an argument Democrats are making. Democrats point out more than a quarter of the federal debt was racked up during the Trump administration, when Republican majorities in Congress approved additional spending and that big 2017 tax cut. Here's New Jersey Democrat Robert Menendez.

(SOUNDBITE OF ARCHIVED RECORDING)

ROBERT MENENDEZ: Republican fingerprints were all over the tax cuts to the wealthiest people and corporations in America to the tune of $2 trillion. You all created a significant part of this debt, and now you want to walk away from it.

HORSLEY: This afternoon, Senate Democrats tried to call Republicans' bluff, saying they don't need Republican votes to raise the debt limit. They just need Republicans to get out of the way. But once again, their efforts were blocked by GOP Senate leader Mitch McConnell.

SHAPIRO: And what kind of financial fallout are we starting to see from this brinksmanship?

HORSLEY: Until now, financial markets have largely been ignoring this fight, figuring that somehow, at the end of this messy process, Congress will do what it has to and the government will keep paying its bills. That's still the likeliest outcome, but there's a little less certainty about that now. And the market was already a little jittery about inflation and other factors. Today, the Dow tumbled almost 570 points. Yellen's warning lawmakers the country could pay a price for this battle even if they don't actually go over the default cliff. Just getting close could be costly. She says the result would be higher borrowing costs for the government, yes, but also for anybody else with a credit card or in the market for a car loan or a home mortgage.

(SOUNDBITE OF ARCHIVED RECORDING)

YELLEN: This would be a manufactured crisis we had imposed on this country, and it would be a self-inflicted wound of enormous proportions.

HORSLEY: And we got kind of a preview of that back in 2011, when Congress waited until the last minute to raise the debt limit. While there was no default back then, the government's credit rating did take a hit.

SHAPIRO: I'm sure we'll have more opportunities to ask you about this debate over the debt limit, but I do want to ask you about something else, which is Federal Reserve Chairman Jerome Powell joined Yellen on the Hill today and got some questions about a controversy involving stock trades by regional Fed bank presidents. Tell us about that.

HORSLEY: You know, recent financial disclosures show that 2 out of 12 Fed bank presidents - those in Dallas and Boston - were actively trading securities last year at a time when the Fed was busy propping up financial markets. Now, both men say their trades were in compliance with the central bank's ethics rules, but Powell acknowledged the rules need to be made tougher.

(SOUNDBITE OF ARCHIVED RECORDING)

JEROME POWELL: The appearance is just obviously unacceptable. Our need to sustain the public's trust is the essence of our work.

HORSLEY: And, Ari, those two bank presidents, Robert Kaplan in Dallas and Eric Rosengren in Boston both announced this week that they will be retiring in the coming days.

SHAPIRO: NPR's Scott Horsley. Thank you.

HORSLEY: You're welcome. Transcript provided by NPR, Copyright NPR.