Yellen warns of likely October debt cliff and incoming 'irreparable damage'

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Treasury Secretary Janet Yellen warned congressional leaders on Wednesday that she expects the country's debt limit will hit its breaking point next month, dealing a likely blow to the global economy without quick action.

In a letter to top lawmakers in both parties, Yellen said the Biden administration’s “best and most recent” calculations suggest that the United States will run out of cash “during the month of October.” If Congress continues to push off action on the debt limit over the next few weeks, she warned, the uncertainty alone could hurt financial markets.

“We have learned from past debt limit impasses,” the secretary wrote, “that waiting until the last minute to suspend or increase the debt limit can cause serious harm to business and consumer confidence, raise short-term borrowing costs for taxpayers, and negatively impact the credit rating of the United States.”

Hearkening to the 2011 debt limit standoff that resulted in the nation’s credit rating being downgraded for the first time in U.S. history, Yellen cautioned that “a delay that calls into question the federal government’s ability to meet all its obligations would likely cause irreparable damage to the U.S. economy and global financial markets.”

House Speaker Nancy Pelosi reiterated Wednesday that Democrats will pursue a bipartisan vote to waive the debt limit, rather than using the reconciliation process to bypass the need for Republican support in the Senate.

“We won’t be putting it in reconciliation,” Pelosi told reporters during a press conference. “We have several options. We’ll make them known to you as we go forward. But it has to happen.”

Yellen reiterated that she backs Democrats’ plan to seek bipartisan action on the issue, noting in her letter that “Congress has addressed the debt limit in recent years through regular order, with broad bipartisan support."

Top Democrats are considering whether to tie action on the debt limit to whatever stopgap spending bill they craft this month to keep the government funded when the new fiscal year dawns on Oct. 1. But Pelosi evaded questioning Wednesday about that option.

“I’m not here to talk about where we will put the debt limit. But it won’t be on reconciliation,” she said.

Dozens of Senate Republicans have threatened to vote against any debt limit remedy, arguing that Democrats have spent trillions of dollars this year without any GOP input and can therefore own the debt problem through the same partisan path.

But voting in opposition could be politically costly for the Republicans, if Democrats do couple action on the debt limit with a government funding bill. And President Joe Biden threw an extra wrench into budget negotiations when he called Tuesday for extra hurricane relief and Afghan resettlement funding under that plan.

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