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Yellen fears recession if federal debt ceiling isn't raised

Treasury Secretary Janet Yellen listens to President Joe

Treasury Secretary Janet Yellen listens to President Joe Biden during a meeting Wednesday with corporate chief executives and members of Biden's cabinet to discuss the federal debt limit. Credit: Getty Images / Chip Somodevilla

WASHINGTON — Treasury Secretary Janet Yellen on Sunday warned that if Congress does not raise the federal debt ceiling again this year, the inability to pay the nation’s bills could "probably cause a recession" and a "financial crisis."

Yellen, appearing on ABC’s "This Week" days after Senate Democrats passed a temporary fix that will raise the ceiling through early December, said a failure to pass a longer suspension could spell "catastrophe" for the nation’s economy.

"Fifty million Americans wouldn't receive Social Security payments, would be put at risk," Yellen said. "Our troops won't know when or if they would be paid. The 30 million families that receive a child tax credit, those payments would be in jeopardy. So, there is an enormous amount at stake. A failure to raise the debt ceiling would probably cause a recession and could even result in a financial crisis."

Senate Republicans, who backed the effort to raise the debt ceiling three times under former President Donald Trump, have this year voiced their objections to raising the debt ceiling to cover $28 trillion in past expenses including $7.8 trillion in new debt incurred during Trump’s time in office, according to the nonpartisan Congressional Research Service.

On Thursday, the Senate GOP temporarily set aside their objections and provided Senate Democrats with 11 necessary votes to clear a procedural hurdle so that Democrats could pass a suspension of the debt ceiling through Dec. 3, but Senate Minority Leader Mitch McConnell (R-Ky.) vowed a day later that Republicans will vote against a future suspension.

Yellen, asked about the prospect of another battle to raise the debt ceiling, said suspending the ceiling has long been "a shared bipartisan responsibility" and failure to do so in December "would be a self-manufactured crisis that affects our economy at a time when we're recovering from the pandemic."

"It’s been raised almost 70 times since 1965, almost always on a bipartisan basis, and no one party is responsible for the need to do this," Yellen said. "I believe it should be a shared responsibility, not the responsibility of any one party."

McConnell has argued that Democrats, who hold a narrow one-vote majority, should use the Senate’s budget reconciliation process to raise the debt ceiling along partisan lines. But Senate Majority Leader Chuck Schumer (D-N.Y.) has argued the suspension should be bipartisan, noting that Senate Democrats sided with Republicans three times under the Trump Administration to raise the ceiling.

Shortly after Thursday’s vote, Schumer took aim at Republicans, accusing them of playing a "dangerous and risky partisan game." The speech was widely criticized by Senate Republicans who described it as "unnecessarily partisan."

Sen. Chris Coons (D-Del.), appearing on "Fox News Sunday," said he understood Schumer’s "deep frustration" with Republicans, but said the timing of his critical remarks "may not have been the best."

"Frankly, I agree with the reasons why Sen. Schumer was so frustrated that this standoff over the debt limit was risky, was unnecessary, was a manufactured crisis," Coons said before questioning the timing of Schumer’s remarks.

The U.S. House is expected to vote on the temporary debt limit suspension this week.

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