dollar-2387088_1280 yellen

Treasury Secretary Yellen Rejects Republican Plan to Prioritize Debt Payments in Case of Default

Treasury Secretary Janet Yellen clarified that she believes a Republican proposal to prioritize U.S. debt payments in the event of a default is not a viable solution. 

With the U.S. already at its federal debt limit, the Treasury has resorted to taking “extraordinary measures” to meet its payment obligations. 

However, suppose the federal debt limit is not increased or suspended. In that case, the Treasury may be unable to meet its financial obligations later this year, which could trigger a global financial crisis, according to many economists.

Republicans, on the other hand, have proposed that the U.S. could avoid a technical default by prioritizing debt payments while leaving other obligations unpaid, such as salaries at government agencies. 

The House Ways and Means Committee has already considered the “Default Prevention Act,” to instruct the Treasury on prioritizing payments in case of a debt limit breach. It requires the Treasury first to pay off all principal and interest on the national debt and all Social Security and Medicare benefits, followed by defense and veterans’ benefits.

However, Secretary Yellen has dismissed this proposal as unrealistic and potentially disastrous. She argued that the U.S. government is designed to pay all its bills on time and cannot pick and choose which ones to pay. 

Yellen also doubted the technical feasibility of such a plan, describing it as an untested and risky departure from normal payment practices across the federal government. 

She urged Congress to focus on its responsibility to protect the full faith and credit of the United States by raising the debt ceiling instead of indulging in disaster contingency planning.

Yellen called debt prioritization “default by just another name” and criticized Republicans for using the need to raise the debt ceiling as leverage to slash federal spending without presenting a detailed budgetary plan. 

Her remarks suggest that some GOP lawmakers are locked into a game of debt-limit chicken with the White House, risking significant economic harm.

Treasury Secretary Yellen’s rejection of the Republican plan to prioritize debt payments highlights the risk of a global financial crisis if the U.S. does not raise its federal debt limit. 

Her call for Congress to focus on its responsibility to protect the full faith and credit of the United States by raising the debt ceiling rather than engaging in contingency planning deserves careful consideration.

 It is essential to prioritize the nation’s long-term economic health over political posturing and brinksmanship.