Appearing before the Senate Finance Committee on Thursday, Treasury Secretary Janet Yellen said in no uncertain terms that she does not think the Republican proposal to make the US prioritize its debt payments in the event of default is viable.
The US bumped up against the federal debt limit in January, forcing the Treasury to take “extraordinary measures” to make its payments. In the absence of an increase or suspension of the federal debt limit, the Treasury could be unable to meet its obligations this summer or early fall — an outcome Yellen and many economists have warned could lead to a global financial catastrophe.
However, some Republicans think the US can avoid a technical default by prioritizing its debt payments, even if other obligations such as salary payments at government agencies remain unpaid. a bill was taken Last week The Treasury Department will be directed by the House Ways and Means Committee on how to prioritize its payments in the event that it is impossible to meet all federal obligations in full within the debt ceiling.
,default prevention act“The Treasury will first be required to pay back all principal and interest on the national debt and all Social Security and Medicare benefits. After those payments are made, the Treasury will be required to prioritize defense and veterans’ benefits. Unless Government travel and salary payments for the executive branch and Congress will also be denied until all other obligations are met.
Yellen clearly stated that she did not think such a plan would work. He told the committee, “The government makes millions in payments every day, on average, and our systems are built to pay all of our bills on time, not pick and choose who to pay.” “It’s just a recipe for economic and financial disaster to think we can pay some of our bills and not all of them.”
Yellen also said that she “cannot make any assurances about the technical feasibility of such a plan. It would be an extraordinarily risky, untested and radical departure from the normal payment practices of agencies in the federal government.”
Calling the debt priority “default by just another name”, Yellen called on Congress to abandon the disaster contingency plan and instead “come together to recognize that the United States needs full faith and credit.” It is their responsibility to protect.”
Bottom-line: Republicans have announced their intention to use the need to raise the debt ceiling as leverage in their campaign to reduce federal spending. Although he has yet to provide a detailed budgetary plan, the fact that he is discussing contingency plans suggests that at least some GOP lawmakers are at loggerheads with the White House in their game of debt-limit chicken. has been discontinued.