DAKAR, Senegal (AP) — US Treasury Secretary Janet Yellen said in an Associated Press interview Saturday that she expects Congress will eventually vote to raise the U.S debt limitbut demands from House Republicans on spending cuts in return, supporting an increase is “a very irresponsible thing to do” and risks creating a “self-inflicted disaster” for the global economy.
The Biden administration and Republican lawmakers have been at odds over how to increase the state’s legal borrowing capacity. On Thursday, the government bumped up against the $31.381 trillion debt ceiling, forcing the US Treasury Department to take “extraordinary” accounting steps to keep the government running.
Asked in the interview, conducted under her trip to Africaon such talk of withholding approval of a higher debt limit unless there are accompanying spending cuts, Yellen called that stance “a very irresponsible thing to do” and said it could have serious consequences even before the “day of reckoning.”
“It’s possible for the markets to get quite worried about whether the US is going to pay its bills,” she said, pointing to the negative economic impact of a 2011 debt settlement.
As for a potential default, she said that “would impose a self-imposed disaster on the US and world economy.” The Treasury Department’s extraordinary move so far means the US government should be able to operate until some time in June, when the limit would have to be raised to avoid what could be significant economic damage.
Yellen said she has not spoken to U.S. Rep. Kevin McCarthy, the newly elected Republican speaker of the House. McCarthy has yet to spell out the size and target of the spending cuts he claims are needed to put the federal government on a healthier economic path.
President Joe Biden and administration officials have called for a “clean increase” — not coupled with cuts — in borrowing capacity, saying the risk of a prolonged stalemate could lead to a deep recession that would reverberate dangerously around the world if the belief lost on credit of the US government.
“Congress needs to understand that this is about paying bills that have already been met by decisions of this and previous Congresses, and this is not about new spending,” Yellen said. She said she believes in making sure the national debt level is sustainable, “but paying our bills is non-negotiable.”
Despite the dire warnings, Yellen said she believes the situation will eventually be defused because lawmakers can understand the escalating danger if the federal government was unable to pay all its bills: crashing financial markets, mass layoffs and an economic downturn that could endanger the US economy. place in the world hierarchy.
“I believe that eventually we will find a way around this,” Yellen said.
The finance minister sat down for the Saturday interview in the middle of a continent-spanning trip where she met with her Chinese counterpart in Switzerland before on the way to SenegalZambia and South Africa.
The Biden administration is trying to signal its support for improving the economies of African countries, many of which have young populations that will ultimately make those nations the driving force behind growth for decades to come. At a summit in Africa held in Washington last month, Biden said he would visit the continent this year as a sign of the desire to increase engagement with the United States.
Before the interview, Yellen went to Senegal Goree Islandtouring a building known as the Slave House, which was a center of the Atlantic slave trade that defined much of American history.
The economist and former chairman of the Federal Reserve has emphasized her desire to reduce racial and income inequality, an element of the systemic racism linked to slavery and its aftermath of segregation. For Democrats, the question of how to bridge this divide is not just a matter of social justice but political pragmatism, since black voters are a key constituency for winning elections.
Yellen said the administration has not turned to compensation — payments and other programs intended for descendants of slaves — to address inequality.
“The administration has not embraced replacements as part of the answer,” Yellen said, adding that “we have a program to try to address these issues, which involves many positive steps and adjustments and increased opportunities.”
America is trying to appeal to African countries on moral terms, saying that US aid and loans will be transparent and fair in ways that Chinese investments have not been.
Relations between the US and China – the world’s two largest economies – have taken on an increasingly antagonistic streak amid the geopolitical fallout from China’s friendship with Russia, the ongoing coronavirus and an era of open globalization that has given way to national security priorities.
The past two US presidential administrations have challenged China’s trade practices, with the Biden administration restricting exports of advanced computer chips as it simultaneously tries to boost the US sector.
“This is not competition with China — we want to deepen our engagement with Africa,” Yellen said. “We want to make sure that we don’t create the same problems that Chinese investment has sometimes created here. That we have transparency, that we have projects that really bring broad-based benefits to the African people and don’t leave a legacy of unsustainable debt.”
Associated Press writer Josh Boak in Baltimore contributed to this report.