Street News!

 

Street News!

NIIGATA, Japan—Treasury Secretary Janet Yellen said it was “legally questionable” whether the Biden administration could rely on the 14th Amendment to effectively ignore the debt limit, pouring cold water on a method favored by some Democrats to avoid a default.  

The 14th Amendment to the U.S. Constitution states that American debt authorized by law “shall not be questioned.” President Biden said this week he was considering invoking the amendment as a way to keep paying the nation’s bills if Congress doesn’t raise the debt limit. But he added the issue would be subject to litigation and may not be a solution in the current standoff.

At a news conference in Niigata, Japan, where finance ministers of the Group of Seven advanced democracies are meeting this week, Ms. Yellen said she doubted whether the 14th Amendment was an effective solution.

“What I would say, it’s legally questionable whether or not that’s a viable strategy,” Ms. Yellen said.

Republicans and Democrats in Washington are locked in a standoff over raising the nation’s $31.4 trillion borrowing limit. Republicans, led by House Speaker Kevin McCarthy, are demanding cuts in federal spending in exchange for raising the debt limit. Democrats are pushing for an increase in the debt limit without policy conditions.

Ms. Yellen has warned that the U.S. could fail to pay its bills on time as soon as June 1 if Congress doesn’t authorize additional borrowing. The political impasse and looming deadline have prompted Biden administration officials to explore unilateral options that could stave off the first-ever U.S. default. A failure by the U.S. to pay its bills on time could have broad financial and economic consequences.

Ms. Yellen said she viewed all potential alternatives—which also include prioritizing interespayments on the debt or minting a $1 trillion coin—as risky.

“I’m often asked questions—if the debt ceiling is not raised, what would you do?” Ms. Yellen said Thursday. “And I don’t want to go there and discuss alternatives. There are choices to be made, if we got into that situation. But as you think about each possible thing that we could do, the answer is there is no good alternative that will save us from catastrophe.”

Ms. Yellen reiterated that she would support eliminating or significantly altering the current system under which Congress must authorize increases in the debt limit. She said her view was personal and wasn’t on behalf of the Biden administration. Mr. Biden has said he doesn’t support eliminating the debt limit.

One way to change the process, Ms. Yellen said, would be for the president to inform Congress that the debt limit had been raised—then allowing Congress to block the decision if it wished.

Of the current system, she said: “I don’t think that’s any way to run the government and so, there are a variety of alternatives and my own preference would be not to go through this every couple of years.”