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Yellen says measures to avoid default could run out by summer

Yellen says measures to avoid default could run out by summer
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Treasury Secretary Janet YellenJanet Louise YellenOn The Money: Sanders: Democrats considering trillion spending package | Weekly jobless claims rise for first time since April End the ban on felon participation in the securities markets Watch live: Yellen testifies before House panel MORE said Friday that the department may run out of ways to prevent a default this summer if the president and Congress fail to reach a deal to raise the legal limit on the national debt.

The so-called debt ceiling was suspended in 2019 for two years and is set to kick back in on July 31. While the Treasury Department is temporarily able to prevent the U.S. from defaulting if the ceiling is reimposed, Yellen said the government may have far less time to do so than some analysts expect.

“There are scenarios in which sometime during the summer the extraordinary measures would run out,” Yellen said.

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The Bipartisan Policy Center, a think tank that closely tracks the debt limit, projected Thursday that the U.S. likely had until the fall to avoid a default without a debt limit hike.

Treasury has been able to avoid defaulting during previous standoffs over the debt ceiling through “extraordinary measures,” which typically involve reshuffling and delaying certain obligations to avoid borrowing more money. The process usually buys the federal government at least two months to strike a deal on the debt ceiling, which is a largely political tool designed to encourage fiscal discipline.

Yellen’s comments come after the department warned Wednesday that "substantial COVID-related uncertainty” makes it “very difficult” to project how long extraordinary measures would last and that they “could be exhausted much more quickly than in prior debt limit episodes.”

Economists and analysts of all stripes say that allowing the U.S. to default would likely cause a collapse of the global financial system given the fundamental role U.S. debt plays in underpinning world commerce. 

“We've always paid our bills, and it simply must happen that Congress raises the debt ceiling in time to allow that to happen,” Federal Reserve Chairman Jerome Powell told lawmakers in July 2019 during the height of the last battle over the debt limit.

The high stakes of a default makes it unlikely that President BidenJoe BidenChinese apps could face subpoenas, bans under Biden executive order: report OVERNIGHT ENERGY:  EPA announces new clean air advisors after firing Trump appointees |  Senate confirms Biden pick for No. 2 role at Interior | Watchdog: Bureau of Land Management saw messaging failures, understaffing during pandemic Poll: Majority back blanket student loan forgiveness MORE and lawmakers will be unable to raise the debt limit, even if through a budget reconciliation bill that only requires simple majorities in each chamber. Even so, Republicans are expected to use the looming deadline to push for spending cuts, raising the prospect of tense battles.