Janet Yellen says she supports abolishing the debt limit.
Treasury Secretary Janet L. Yellen said on Thursday that the statutory credit limit should be abolished, arguing that the borrowing limit is “catastrophic” and poses unnecessary risks to the economy.
The comments were made in the House Financial Services Hearing, when the United States faced an October 18 deadline to raise or suspend debt limits. Ms Yellen warned on Thursday that failure to act would be “catastrophic” for the economy and said she supported proposed legislation to remove the limit because it prevents the government from spending as authorized by Congress.
“I believe that when Congress legislates on spending and creates a tax policy that sets taxes, those are important decisions that Congress is making,” Ms Yellen said. “And if, in order to finance those spending and tax decisions, it is necessary to issue additional debt, then I believe it is very disastrous to have the president and myself as the Treasury secretary, in a situation where we are not going to pay bills. as a result of those previous decisions.”
Debt limits were established in the early 20th century, so the Treasury did not need to ask permission each time it issued bonds to pay bills. According to the Congressional Research Service, the first debt limit came about as part of the Second Liberty Bond Act of 1917. A general limit on federal debt was imposed in 1939.
Republicans are refusing to join Democrats in raising the debt limit, insisting they act alone in opposing the massive spending packages Democrats hope to enact. At Thursday’s hearing, Ms Yellen said tackling the debt limit should be a bipartisan responsibility, as it allows the government to repay loans owed by Democrats and Republicans.
If the loan limit is not addressed by the October 18 deadline, Social Security payments will be delayed, soldiers may not receive their paychecks on time and interest rates for mortgages and car loans could rise.
Ms Yellen also warned that the erosion of confidence in the safety of US Treasury debt would be a “catastrophic event”.
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