Treasury Secretary Yellen warns debt ceiling battle could spell 'catastrophe'

"Absolutely imperative we raise the debt ceiling," Yellen said.

October 10, 2021, 1:31 PM

U.S. Treasury Secretary Janet Yellen warned on ABC's "This Week" that Sen. Minority Leader Mitch McConnell and Republicans are playing with "catastrophe" over a pending fight to raise the debt ceiling.

While the Senate reached a deal on Thursday for an emergency hike of the debt ceiling by $480 billion to pay the nation's bills through Dec. 3, McConnell has warned of a battle brewing over raising it further.

Pressed by "This Week" anchor George Stephanopoulos about what would happen if McConnell keeps his word that Republicans won't help the Democrats next time, Yellen painted a picture with drastic consequences.

"Fifty million Americans wouldn't receive Social Security payments. Our troops won't know when or if they would be paid. The 30 million families that receive a child tax credit, those payments would be in jeopardy," Yellen said.

She said such a scenario "could result in catastrophe."

While no Republicans voted on Thursday to raise the debt ceiling, 11 voted with Democrats to break a Republican filibuster so the measure to raise the debt ceiling could advance. In the end, the final measure to temporarily raise the debt ceiling passed by a vote of 50-48 with no Republicans voting in favor.

PHOTO: Treasury Secretary Janet Yellen speaks during a meeting with President Joe Biden and business leaders about the debt limit in the South Court Auditorium on the White House campus, Oct. 6, 2021.
Treasury Secretary Janet Yellen speaks during a meeting with President Joe Biden and business leaders about the debt limit in the South Court Auditorium on the White House campus, Oct. 6, 2021.
Evan Vucci/AP

Passage of the measure temporarily staved off a potential government shutdown and default but sets up a battle between Republicans and Democrats when a more permanent resolution is sought in December.

In a letter to Biden on Friday, McConnell took credit on behalf of Republicans who "filled the leadership vacuum" and helped dodge financial calamity by voting to remove the Republican filibuster stalling the temporary debt ceiling measure. He warned that come December, he would be willing to allow the nation to default on its national debt rather than work with Democrats on a resolution.

Yellen has previously expressed support for eliminating the debt limit and was asked by Stephanopoulos if she has been able to convince President Joe Biden to get on board with that position.

"Yes, I support [it]. But it's up to Congress," Yellen said.

Before reaching the short-term deal to end a debt ceiling standoff and avert a U.S. default for the first time, some senators and other proponents refloated the idea of allowing the Department of Treasury to mint a platinum coin of any value without congressional approval to ensure the nation's bills are paid. Under the 2001 law, the coin must be made of platinum because of Congress' control over gold, silver, nickel, bronze and copper.

Yellen scoffed at the idea when Stephanopoulos asked why she would not consider minting a trillion-dollar coin.

"I think it’s a gimmick. And it jeopardizes the independence of the Federal Reserve," Yellen responded. "[The deficit] has been raised almost 70 times since 1965, almost always on a bipartisan basis ... I believe it should be a shared responsibility, not the responsibility of any one party."

Another possible option to bypass the stalemate with Republicans over raising the debt ceiling would be to allow Biden to invoke the Civil War-era 14th Amendment and ignore the statutory debt limit.

"Is invoking the 14th on the table if Congress doesn’t act?" Stephanopoulos asked the secretary. Saying the "text is pretty clear," Stephanopoulos read the section of the amendment which states, "The validity of the public debt of the United States... should not be questioned."

Yellen said, "I don’t think any president has had to do that … can’t imagine being there on Dec. 3."

She said if the debt ceiling is not raised in December "this would be a self-manufactured crisis that affects our recovery coming out of the pandemic and would be a self-inflicted wound. We shouldn’t ever be in that position."

Yellen was also asked to weigh in on the ongoing fight over Biden's proposed $3.5 trillion "Build Back Better" infrastructure plan. She said members of Congress are engaged in discussions over "the best way to construct a package that would have huge payoffs for America."

"America needs roads, bridges, railroads, infrastructure for the electric grid, but also programs that would help children and families succeed, child care, community colleges -- all hard choices to negotiate," Yellen said.

Asked whether she and Biden are going to weigh in on disagreements over the Build Back Better plan, Yellen said, "This is a healthy give and take right now. I think everyone realizes ... this is a historic opportunity to invest in this country to address long-standing structural problems that have been holding back American families."

"I believe that Democrats will come together and do what’s necessary and take advantage of this opportunity," Yellen said.

Yellen also expressed confidence that Congress will approve legislation to include the 15% global corporate minimum tax agreed to by 136 countries in Biden's spending package. She said the tax would "reassure the world that the U.S. will do its part."

"This is a very historic agreement," Yellen said. "We should be competing on the basis of our strengths, on our institutions, not a race to the bottom that deprives countries of the resources we need to invest in our people."