Prioritizing funds to cowl solely sure obligations wouldn’t keep away from a US debt default, Treasury Secretary Janet Yellen informed the Senate Finance Committee Thursday morning.
“Prioritization is successfully a default by simply one other title,” Yellen mentioned, referencing a proposal floated by Home Republicans.
The US hit its $31.4 trillion debt ceiling in January, forcing the Treasury Division to take extraordinary measures to permit the federal authorities to proceed paying its payments in full and on time. A default might come over the summer season or in early September, in response to numerous analyses.
Yellen has repeatedly confused the significance that Congress come collectively to handle the borrowing cap as quickly as potential.
However President Joe Biden and Home Republicans are in a standoff over whether or not to incorporate spending cuts in a debt ceiling measure.
The GOP-led Home Methods and Means Committee final week superior the Default Prevention Act, which might modify Treasury’s debt authority to permit it to proceed to borrow to pay principal and curiosity on the general public debt, in addition to Social Safety and Medicare advantages. It additionally directs Treasury to pay obligations associated to the Division of Protection and veterans’ advantages earlier than all others.
Yellen made it clear she doesn’t agree with prioritization.
“It is merely a recipe for financial and monetary disaster to suppose we will pay a few of our payments and never all of them,” she mentioned.
Additionally, she mentioned she can’t guarantee that the concept is possible, noting there’s a purpose why Treasury secretaries of each events have rejected prioritization prior to now.“
The federal government, on common, makes thousands and thousands of funds every day, and our programs are constructed to pay all of our payments on time and to not choose and select which payments to pay,” she mentioned. “It will be an exceptionally dangerous, untested and radical departure from regular fee practices of companies throughout the federal authorities.”