She said Biden hoped to establish a process for discussing and compromising on fiscal-policy issues and his budget proposal with congressional Republicans but would not do it "with a gun" to his or the American people's heads.
Biden insists that Congress has a constitutional duty to raise the debt ceiling, which reflects previously spent federal money, without conditions, but Republicans have tied any increase to sweeping budget cuts that Democrats oppose. Biden will meet on Tuesday with Republican House Speaker Kevin McCarthy, Senate Minority Leader Mitch McConnell and top congressional Democrats at the White House to try to break the impasse. Yellen conceded there was "a very big gap" between Biden's position and that of many Republicans, warning that their proposed spending cuts were "draconian."
Risking default to secure budget cuts could bring "enormous
harm to American households," and even the current brinkmanship
would harm financial markets and could jeopardize U.S.
government credit ratings and undermine the U.S. currency.
"The dollar is regarded - and Treasury securities - as the
bedrock safe asset in the entire global financial system," she
said. "It's trusted, and it is the ultimate safe asset and a
failure to raise the debt ceiling, impairing the U.S. credit
rating, would put that at risk. So that is a real concern.
Yellen told lawmakers last week that Treasury will likely be
unable to pay all the government's bills as early as June 1
without an increase in the federal debt limit.
Yellen, other economists and analysts have repeatedly warned
that a default on U.S. debt would result in millions of job
losses, while driving household payments on mortgages, auto
loans and credit cards higher.
Unlike most other developed countries, the U.S. puts a hard
limit on how much it can borrow. Because the government spends
more than it takes in, lawmakers must periodically raise the
debt ceiling.
(Reporting by Andrea Shalal and David Lawder in Washington
Editing by Mark Porter and Matthew Lewis)
