Treasury Secretary Janet Yellen warned on Tuesday that the nation could default on its debt by 18 October if Congress does not take action to raise the debt limit.
The secretary and Federal Reserve Chairman Jerome Powell testified before the Senate Banking Committee where Ms Yellen told Senators what would happen if they failed to act.
“If it does not, America would default for the first time in history,” Ms Yellen warned. “The full faith and credit of the United States would be impaired, and our country would likely face a financial crisis and economic recession.”
Republican Senators blocked legislation that would have averted a government shutdown and raised the debt limit. Senate Minority Leader Mitch McConnell has indicated Republicans will not assist with raising the debt limit.
Ranking Republican Sen Pat Toomey of Pennsylvania criticized Democrats for going on a “spending binge.”
“If the government goes on a spending binge, that will certainly require more borrowing to pay for all that spending,” he said, noting that Democrats want to increase spending through their social spending program, which they plan to pass without Republican support.
“The Democrats have chosen to ignore our warning about this excessive spending but they want us to vote to raise the debt ceiling in order to permit the massive spending increases that they’re planning.”
But Ms Yellen added that the debt limit was not a matter of increasing spending.
“It is entirely about paying bills that have already been incurred by this Congress and previous Congresses and it’s about making good on past commitments,” she said.
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