Yellen’s Debt Limit Warnings Went Unheeded, Leaving Her to Face Fallout

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As former Federal Reserve Chair Janet Yellen assumed her new role as the United States Treasury Secretary, she was faced with a major challenge right off the bat: the national debt limit. For years, Yellen had been warning of the implications of not addressing the debt ceiling. However, her warnings went unheard, and the fallout of not taking action has become a major issue for the US government.

The national debt is the amount of money that the government owes to its creditors. Currently, the United States’ national debt is over $28 trillion. This debt has been growing rapidly in recent years, partly as a result of the COVID-19 pandemic and the associated economic relief measures that were implemented to help Americans weather the storm. The debt limit is the legal cap on how much money the government can borrow to finance its operations.

In August of 2019, the government once again surpassed the debt limit. Yellen, who was Chair of the Federal Reserve at the time, expressed her concerns about the implications of not addressing the debt ceiling, stating that it endangered the full faith and credit of the US government. However, Congress did not heed her warnings and instead suspended the debt limit for two years.

Fast forward to 2021. Yellen is now Treasury Secretary, and the government is once again facing a debt crisis. As of August 1, the debt limit has been reimposed, and Yellen is once again sounding the alarm. She has urged Congress to raise or suspend the debt limit to avoid a default on the government’s debt obligations. Failure to do so, Yellen warns, could have catastrophic consequences for the economy and for everyday Americans.

Why does the debt limit matter so much? First and foremost, a default on the government’s debt could cause a financial crisis. If the government is unable to pay its bills, it would destroy the faith and confidence that investors have in the US economy. This could lead to a sharp decline in the value of the dollar, and could even spark a recession or worse.

In addition, a debt default could have implications for America’s ability to borrow in the future. If investors lose faith in the government’s ability to repay its debts, they may demand higher interest rates on future loans. This would make it more expensive for the government to borrow money, potentially leading to further budget cuts and austerity measures to try to balance the books.

So why didn’t Congress act sooner to address the debt limit? One reason is that it has become a politically contentious issue. Both parties have used it as a bargaining chip in budget negotiations, and neither wants to be seen as giving in to the other. Additionally, some lawmakers believe that a debt default would not be as catastrophic as Yellen is warning. They argue that the US government has never defaulted on its debt, and that it is unlikely to happen now.

However, Yellen is not alone in her concerns. Many economists and financial experts agree that a debt default could have dire consequences for the US economy. In fact, some are already seeing the effects of the current debt crisis. The government has been forced to suspend investments into certain retirement funds and other government accounts to avoid exceeding the debt limit. This has caused some disruptions in the financial markets and has made it more difficult for the government to manage its finances.

Overall, Yellen’s debt limit warnings were prescient, and it’s clear that the fallout from ignoring those warnings is already being felt. However, it’s not too late to address the issue. Congress can still act to raise or suspend the debt limit, and doing so would help prevent a potentially catastrophic financial crisis. It’s up to our elected officials to take action and do what’s best for the American people.