By Joanna Button
The problem: U.S. Treasury Secretary Janet Yellen has warned that the U.S. could reach its debt ceiling of $31.4 trillion and run out of funds by June 1. She is urgently calling on Congress to reach an agreement to raise the debt ceiling. Republicans are demanding that a reduction of government spending accompany the raising of the debt ceiling, Democrats are refusing those conditions, and neither side seems willing to budge.
What a default could mean: Congress has raised the debt ceiling 78 times since 1960. The U.S. has never defaulted on its debt payments, so the exact extent of the potential consequences is unknown. Defaulting would likely decrease trust in the U.S. dollar and treasury bonds, weaken the economy, and increase unemployment.
Proposed solutions: Some economists say the Treasury should mint a trillion-dollar platinum coin to pay off debt temporarily, but the idea isn’t being seriously considered. President Joe Biden and other progressives have hinted at declaring the debt ceiling unconstitutional under the 14th Amendment, which would allow unlimited government spending and borrowing—an unprecedented approach. Yellen didn’t rule out the idea when asked about it, saying Congress shouldn’t allow the crisis to “get to the point where we need to consider whether the president can go on issuing debt.”
Negotiations: Biden met with House Speaker Kevin McCarthy (R-Calif.) yesterday to negotiate the debt ceiling raise. Little progress was made, and another meeting will be held on Friday. Republicans want to use the high-stakes situation to push for spending cuts and fiscal responsibility—they successfully did so in 2011, days before the government defaulted. But Biden and Senate Majority Leader Chuck Schumer (D-N.Y.) say there’s nothing to negotiate.