(Adds details on potential actions post-default, adds comment
from UK finance minister Hunt)
By Andrea Shalal
NIIGATA, Japan, May 13 (Reuters) - Treasury Secretary
Janet Yellen on Saturday called a showdown over raising the U.S.
debt ceiling "more difficult" than in the past but said she
remained hopeful a solution could be found to avert a first ever
U.S. default
Yellen told Reuters in an interview on the sidelines of a
meeting of Group of Seven finance officials in Japan that she
hoped to update the U.S. Congress within the next couple of
weeks about when exactly Treasury would run out of funds to pay
the government's bills.
The U.S. Treasury chief has called repeatedly for Congress
to agree to raise the $31.4 trillion cap on federal borrowing to
avert the "economic and financial catastrophe" that would ensue
if the United States defaulted on its debts.
British finance minister Jeremy Hunt told reporters the
standoff posed a "very serious" threat to the global economy.
"It would be absolutely devastating if America... was to
have its GDP knocked off track by not reaching agreement," Hunt
said on the sidelines of the G7 meetings.
Yellen said her estimate last week that the Treasury may not
be able to meet payment obligations as early as June 1 was
consistent with Friday's report from the Congressional Budget
Office warning of a "significant risk" of default in the first
two weeks of June.
President Joe Biden, a Democrat, insists Congress has a
constitutional duty to raise the limit without conditions to
fund previously approved spending. Republicans, who control the
House of Representatives, want Biden to agree to sweeping budget
cuts to secure their agreement.
Unlike most developed countries, the U.S. sets a ceiling on
how much it can borrow. Because the government spends more than
it takes in, lawmakers must periodically raise that cap.
POLARISATION
Yellen said the first major standoff over the debt ceiling
since 2011 reflected continuing U.S. polarisation after the
presidency of Donald Trump.
"It’s certainly not a positive for relationships and
standing in the world and credibility," she said. "Maybe this
time is more difficult, but I'm hopeful that...we will find a
solution."
She said it was a positive sign that "pretty much everyone"
at a meeting Biden hosted with congressional leaders on Tuesday
agreed it would be unacceptable for the U.S. to default.
Biden, who is expected to reconvene the group early next
week, still viewed attending the G7 summit starting on Friday in
Hiroshima as a priority, Yellen said, although she noted that he
had said he could cancel the trip if there was not sufficient
progress on ending the impasse.
Despite the debt ceiling fight, Yellen said she remained
convinced that the Biden administration had re-established U.S.
leadership in the world and other G7 leaders were grateful they
had turned "the dial 180 degrees relative to the Trump
administration".
She argued there were no good options for prioritising
payments in the event of a default, but conceded it would be
technically possible to process them one day at a time as
revenue came in, resulting in a sort of rolling default.
Principal and interest payments are handled separately.
In a report this week, the Bipartisan Policy Center said
some Treasury officials had viewed the approach as the most
plausible and least harmful during the 2011 standoff.
"We shouldn’t be talking about that," Yellen said. "We
should be talking about raising the debt ceiling. Every plan has
serious downsides.”
(Reporting by Andrea Shalal in Niigata; Editing by William
Mallard, Kirsten Donovan)
