Former treasury secretaries urged congressional leaders to resolve an impasse over the nation's $28 trillion debt ceiling before October, warning there could be "detrimental" economic consequences if lawmakers fail to raise the nation's borrowing limit.
In a letter to the top Republican and Democrat from each chamber of Congress, six former treasury secretaries sounded the alarm about the ramifications of a debt default, including the risk of roiling market, a decline in economic confidence and forced funding cuts for federal programs, such as Social Security.
"Failing to address the debt limit, and allowing an unprecedented default, could cause serious economic and national security harm. Even a short-lived default could threaten economic growth," the letter said. It was signed by Michael Blumenthal, Robert Rubin, Larry Summers, Henry Paulson, Timothy Geithner and Jack Lew.
Treasury Secretary Janet Yellen has repeatedly warned that without congressional action, the U.S. could default on its debt sometime in October, potentially triggering an "economic catastrophe." But lawmakers are engaged in a game of brinkmanship over the debt: Senate Minority Leader Mitch McConnell, R-Ky., last week rejected an appeal from Yellen to suspend the cap on how much money the government can borrow.
"Let’s be clear: With a Democratic President, a Democratic House, and a Democratic Senate, Democrats have every tool they need to raise the debt limit. It is their sole responsibility," McConnell tweeted last week. "Republicans will not facilitate another reckless, partisan taxing and spending spree."
House Democrats on Tuesday night passed a short-term spending bill to keep the government funded through early December, along with a measure raising the debt ceiling. But the bill is almost certainly doomed in the upper chamber, where all but four Republican senators have promised to vote against it. Democrats would need to secure the support of at least 10 GOP lawmakers to overcome a filibuster.
"Short of actual default, even delaying resolution until default is imminent can be detrimental," the former treasury secretaries wrote. "This would be true in any circumstances, but it is particularly true now as the timing of borrowing needs are especially uncertain, given the impact of the pandemic and the policy actions enacted by Congress in response."
The Treasury Department began implementing so-called extraordinary measures to keep the government running after the debt limit was reinstated in August around $22 trillion – about $6 trillion less than the actual level.
If the U.S. failed to raise or suspend the debt limit, it would eventually have to temporarily default on some of its obligations, which could have serious and negative economic implications. Interest rates would likely spike, and demand for Treasurys would drop; even the threat of default can cause borrowing costs to increase.
"The U.S. has never defaulted. Not once," Yellen wrote in a recent Wall Street Journal op-ed. "Doing so would likely precipitate a historic financial crisis that would compound the damage of the continuing public health emergency."