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Posted: Thu, 16 Mar 2023 05:55:02 GMT
US Treasury Secretary Janet Yellen testifies before the Senate Finance Committee on March 16.
US Treasury Secretary Janet Yellen testifies before the Senate Finance Committee on March 16. (Andrew Caballero-Reynolds/AFP/Getty Images)

Prioritizing payments to cover only certain obligations would not avoid a US debt default, Treasury Secretary Janet Yellen told the Senate Finance Committee Thursday morning.

“Prioritization is effectively a default by just another name,” Yellen said, referencing a proposal floated by House Republicans.

The US hit its $31.4 trillion debt ceiling in January, forcing the Treasury Department to take extraordinary measures to allow the federal government to continue paying its bills in full and on time. A default could come over the summer or in early September, according to various analyses.

Yellen has repeatedly stressed the importance that Congress come together to address the borrowing cap as soon as possible.

But President Joe Biden and House Republicans are in a standoff over whether to include spending cuts in a debt ceiling measure.

The GOP-led House Ways and Means Committee last week advanced the Default Prevention Act, which would modify Treasury’s debt authority to allow it to continue to borrow to pay principal and interest on the public debt, as well as Social Security and Medicare benefits. It also directs Treasury to pay obligations related to the Department of Defense and veterans’ benefits before all others.

Yellen made it clear she does not agree with prioritization.

“It's simply a recipe for economic and financial catastrophe to think we can pay some of our bills and not all of them,” she said.

Also, she said she cannot assure that the idea is feasible, noting there’s a reason why Treasury secretaries of both parties have rejected prioritization in the past.“

The government, on average, makes millions of payments each day, and our systems are built to pay all of our bills on time and not to pick and choose which bills to pay,” she said. “It would be an exceptionally risky, untested and radical departure from normal payment practices of agencies across the federal government.”

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