Yellen wants a new system to stop harmful debt-ceiling standoffs.

Treasury Secretary Janet Yellen Calls for Change in Managing Finances to Avoid Debt-Ceiling Standoffs

Preventing Future Standoffs

Treasury Secretary Janet Yellen has called for a new system of managing the country’s finances to standoffs/” title=”Yellen wants a new system to stop harmful debt-ceiling standoffs.”>prevent future debt-ceiling standoffs. Yellen believes that these standoffs are “tremendously damaging” and that a different approach is needed to avoid them in the future. She reiterated that the only way to avoid a looming debt default is for Congress to lift the borrowing cap.

Current Situation

Negotiations on raising the debt cap resumed on May 9 between President Joe Biden and House Speaker Kevin McCarthy, but they ended with no breakthrough. Biden has insisted on a clean bill to raise the borrowing limit, while McCarthy and House Republicans have put forward a proposal that would pair lifting the cap by $1.5 trillion with $4.5 trillion in spending cuts over a decade. The president has rejected the GOP proposal and vowed to veto it if it reaches his desk.

The Consequences of Default

The Treasury Department has warned that the United States could default as soon as June 1 if no deal is reached. Even a “short” default could eliminate half a million jobs, while a “protracted” one could cost 8.3 million jobs.

Possible Solutions

Yellen believes that having a debt ceiling in place creates a situation where “we can’t pay all the government’s bills, and I don’t think that’s any way to run the government.” One option she suggests is that Congress could repeal the debt ceiling entirely. Another possibility would be for the president to act unilaterally and raise the debt ceiling, which Congress could vote to override. The president could then veto that, requiring a congressional supermajority to override that veto.

Conclusion

Debt-ceiling standoffs have occurred nearly 80 times since the 1960s, and Yellen believes that a different system for deciding on fiscal policy is needed. While she emphasized that this is her own view rather than one endorsed by Biden, it’s clear that something needs to change to prevent future standoffs and the damaging consequences that come with them.