Senior Democratic leaders were adamant that the debt ceiling be resolved on a bipartisan basis last month. Senate Republicans have uniformly insisted that Democrats should alone be responsible for raising the nation’s debt limit. Congress probably will face a deadline of Dec. 3 to act, though the exact date is uncertain.
The stalemate brought the United States within weeks of a potentially catastrophic default last month, forcing Treasury to deploy “emergency measures” to prevent funds from running out.
“Should it be done on a bipartisan basis? Absolutely. Now, if they’re not going to cooperate, I don’t want to play chicken and end up not raising the debt ceiling. I think that’s the worst possible outcome,” Yellen told The Washington Post. “If Democrats have to do it by themselves, that’s better than defaulting on the debt to teach the Republicans a lesson.”
While condemning the Republican approach as “completely irresponsible,” Yellen also expressed openness to Democrats using the part of the reconciliation procedure called Section 304 to resolve the debt ceiling impasse to circumvent the filibuster. Democrats on the Senate Budget Committee previously ruled out that approach.
The debt ceiling sets the maximum amount that the United States can borrow under the law. But Congress has also approved spending laws requiring the federal government to run a national debt in excess of this limit. Economists say that breaching the debt ceiling and failing to pay the U.S. government’s outstanding debts — an unprecedented event — would rattle world markets and could plunge the country into an economic recession.
“To me, as the person who has to pay the bills and watches this on a daily basis — our funds dwindling in our account over time — I very much want to make sure that this is addressed. And this Section 304 procedure is one way in which that could occur,” Yellen told The Post. “I don’t want to take 304 off the table, because it looks to me like a viable route to do it.”
She added, “We are in a very unfortunate position in which the Republicans have simply insisted they are not going to cooperate, and there may be other ways to do it.”
With only weeks to resolve the debt ceiling impasse, Senate Majority Leader Charles E. Schumer (D-N.Y.) said in late September that “this body cannot and will not” use the budget reconciliation process to deal with the issue. Democrats argued that there was insufficient time to go through the reconciliation process because it would allow Republicans to delay the effort through procedural objections. Congress may have more time to try to use the procedure now.
President Biden refused to entertain the possibility of Senate Minority Leader Mitch McConnell (R-Ky.) not providing the votes necessary to raise the debt ceiling. Asked in October whether he could guarantee the debt ceiling would be resolved, Biden said: “No, I can’t. That’s up to Mitch McConnell.”
When asked about raising the debt limit through reconciliation, Biden said, “I’m not going to cross that bridge until we have to get there.”
Warren Gunnels, an aide to Senate Budget Committee Chairman Bernie Sanders (I-Vt.), told The Post in early October: “We’re not doing the debt ceiling through reconciliation. Period. End of discussion.”
The debt ceiling issue is particularly sensitive for Yellen, given the Treasury’s responsibility for managing the federal government’s finances. Her former position as chairwoman of the Federal Reserve also gives her insight into the potential consequences of a default.
In early October, Yellen endorsed abolishing the debt ceiling altogether — a position not yet taken by the White House or Biden.
“It is my view — it’s not the White House view; it’s not the president’s view; they haven’t weighed in on this — but I personally feel we should not have a debt ceiling,” Yellen said in Sunday’s interview.
Yellen has also been told by two of her predecessors that a bipartisan approach to the debt ceiling is not possible. Two former GOP treasury secretaries — Hank Paulson and Steven Mnuchin — previously communicated to Yellen in private that McConnell was not bluffing in his refusal to help Democrats raise the debt ceiling. The rest of the Senate Republican caucus has supported McConnell’s approach.
Some nonpartisan estimates have found that the debt ceiling may not have to be raised until February.
Yellen expressed openness to multiple ways to resolve the debt ceiling impasse. One option that she acknowledged was under discussion included changing the debt limit so it automatically resets to whatever level of debt Congress has de facto authorized through new legislation.
“I have not particularly advocated any particular way of doing it. That’s one form I have heard discussed,” Yellen said.
She has rejected some liberals’ arguments that the administration can resolve the debt ceiling impasse unilaterally. White House officials have gone as far as privately exploring in memos some of these ideas, including a heterodox plan to mint a $1 trillion coin that Yellen has panned. The administration said last month that those ideas are not actively under consideration.
Yellen traveled Sunday from the Group of 20 summit in Rome to Dublin to discuss a new global tax accord she was instrumental in approving. She will later head to Glasgow, Scotland, for an international climate summit.
Correction: A previous version of this article incorrectly said Senate Majority Leader Charles E. Schumer (D-N.Y.) ruled out using reconciliation to deal with the debt ceiling in early October. In fact, those remarks were made in late September. The article has been corrected.