WASHINGTON (CN) — If Congress fails in the next week to either increase or suspend the U.S. debt limit, the nation could default on its numerous obligations and experience a “catastrophic” hit to its pandemic-bruised economy.
Treasury Secretary Janet Yellen issued the warning Friday to Speaker of the House Nancy Pelosi in a letter that says the Treasury will be forced to take “extraordinary measures” to avoid overstepping the limit. The nation’s debt limit, in the simplest terms, prohibits how much the country can borrow at a given time to meet existing legal obligations. Those obligations include things like Social Security benefits, salaries for the U.S. military, tax refunds and other payments.
The U.S. has never defaulted on these obligations before and, according to the Treasury, since 1960 Congress has managed on 78 different occasions to either raise, extend or revise the limit to stave off major economic trouble.
The current debt ceiling is about $22 trillion, according to the Committee for a Responsible Federal Budget.
“The period of time that extraordinary measures may last is subject to considerable uncertainty due to a variety of factors, including the challenges of forecasting the payments and receipts of the U.S. government months in the future, exacerbated by heightened uncertainty in payments and receipts related to the economic impact of the pandemic,” Yellen said. “Given this, Treasury is not able to currently provide a specific estimate of how long extraordinary measures could be exhausted soon after Congress returns from recess.”
Officially, the statutory limit falls on August 1. Though lawmakers are slated to go on recess August 9 through September 10, they have for weeks considered not taking the recess this year due to protracted negotiations over President Joe Biden’s $1.2 trillion infrastructure bill. Bu Friday afternoon, however, a final call one way or the other had yet to be made.
A failure to meet the obligations tied to the nation’s debt limit would cause “irreparable harm,” Yellen wrote.
“Even the threat of failing to meet those obligations has caused detrimental impacts in the past, including the sole credit rating downgrade in the history of the nation in 2011,” Yellen said. “This is why no President or Treasury Secretary of either party has ever countenanced even the suggestion of a default on any obligation of the United States.”
An estimate from the Congressional Budget Office published this month has suggested the Treasury may run out of cash altogether by October or even November without action. This means, for one, that if lawmakers in the House and Senate did take their prescheduled recess, they would run headlong into a crisis at the Defense Department. The U.S. is currently obligated to pay the department $150 billion for retirement and health care costs, and that reserve will be totally emptied if the debt limit is not increased by Oct. 1.
During a press briefing Friday, White House press secretary Jen Psaki responded to the letter from Yellen.
“We think it is clear Congress should act in a bipartisan manner to raise the debt limit as they have in the past,” Psaki said.
Those prospects already look a little bleak if not fraught with complications. Earlier this week Senate Minority Leader Mitch McConnell from the floor appeared unenthusiastic about raising the ceiling. Senate Majority Leader Chuck Schumer effectively accused McConnell of holding the national economy hostage. Senator Lindsay Graham, a Republican of South Carolina, told reporters on Capitol Hill he may whip votes in favor of increasing the debt limit on conditions, including an agreement among lawmakers to establish a commission that would strengthen the nation’s Social Security programs and Medicare.
Graham is the ranking member on the Senate Budget Committee.
Though historically Republicans are against raising the ceiling, during President Donald Trump’s administration, the ceiling was raised three times.
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