Treasury Secretary Janet Yellen listens as President Joe Biden speaks to reporters before the start of a cabinet meeting on March 3, 2022 in Washington, D.C.

Treasury Secretary Janet Yellen listens as President Joe Biden speaks to reporters before the start of a cabinet meeting on March 3, 2022 in Washington, D.C.

(Photo: Anna Moneymaker/Getty Images)

As Debt Ceiling Alarm Sounded, GOP Accused of Plotting 'Terrorist Attack on the Economy'

"They have the tiniest majority of one house and they are prepared to use it to get concessions they know are incredibly unpopular," one economist lamented.

As Treasury Secretary Janet Yellen warned Friday that the United States is likely to reach its arbitrary borrowing limit next week, progressives denounced congressional Republicans for threatening to use a debt ceiling standoff to force cuts to popular federal programs including Medicare and Social Security.

"They have the tiniest majority of one house and they are prepared to use it to get concessions they know are incredibly unpopular," Dean Baker, co-director of the Center for Economic and Policy Research, toldThe Washington Post. "It would be a terrorist attack on the economy."

Yellen announced that once the outstanding debt of the U.S. hits the statutory limit of $31.4 trillion—an event projected to happen on January 19—the Treasury Department will start repurposing federal funds to delay the date the government runs out of money. Until Congress raises the debt limit, the Treasury cannot borrow additional money, including to pay for spending that has already been authorized.

In a letter to congressional leaders, Yellen wrote that "the use of extraordinary measures enables the government to meet its obligations for only a limited amount of time," possibly through early June. She implored Congress to "act in a timely manner to increase or suspend the debt limit," warning that "failure to meet the government's obligations would cause irreparable harm to the U.S. economy, the livelihoods of all Americans, and global financial stability."

House Speaker Kevin McCarthy (R-Calif.) suggested—before the GOP won its slim House majority during November's midterms—that if elected to lead the chamber, he would refuse to lift the country's borrowing limit unless Democrats agreed to slash the social safety net and climate investments in return.

To secure enough votes to win his drawn-out battle for the speaker's gavel, McCarthy made undisclosed promises to far-right lawmakers, including several House Freedom Caucus members who have expressed opposition to raising the debt ceiling even if all of their demands, from shredding vital social programs to passing draconian immigration restrictions, were met.

The fight over the debt ceiling represents one of McCarthy's "most difficult balancing acts," CNNnoted recently. The California Republican will "need to work with Senate Democrats and President Joe Biden to cut a deal and avoid economic catastrophe without angering his emboldened right flank for caving into the left."

McCarthy told reporters Thursday that "he hoped to 'sit down with [Biden] early' to work through a number of outstanding fiscal issues, potentially including the looming need to raise the debt ceiling," the Post reported. "In doing so, McCarthy reaffirmed Republicans' interest in seeking an agreement that could cap spending in exchange for votes to address the country's borrowing cap."

"We've got to change the way we're spending money wastefully in this country," McCarthy said. "And we're going to make sure that happens."

Notably, Capitol Hill's deficit hawks do not support reducing the Pentagon's ever-expanding budget or hiking taxes on the rich to increase revenue. On the contrary, the first bill unveiled by House Republicans in the 118th Congress seeks to rescind most of the Inflation Reduction Act's roughly $80 billion funding boost for the Internal Revenue Service—a move that would help wealthy households evade taxes and add an estimated $114 billion to the federal deficit.

A 2011 debt ceiling standoff enabled the GOP to impose austerity and also resulted in a historic downgrading of the U.S. government's credit rating, but the country has never defaulted on its debt. Economists warn that doing so would likely trigger chaos in financial markets, leading to millions of job losses and the erasure of $15 trillion in wealth. Knowing that a painful recession is at stake, "many leading Republican lawmakers are demanding that their new House majority use the debt limit as leverage to force the Biden administration to accept sweeping spending cuts that Democrats oppose, creating an impasse with no clear resolution at hand," the Post reported.

According to CNN, some Republicans—fearful of both a disastrous default and political backlash for attacking popular programs—remain uneasy about using the debt ceiling as a bargaining chip,recalling how then-Rep. Paul Ryan's (R-Wis.) proposal to privatize Medicare "became fodder for attacks that depicted him rolling an elderly lady in a wheelchair off a cliff."

Sen. Elizabeth Warren (D-Mass.), however, has warned that GOP lawmakers desperate to win the White House in 2024 will "blow up the economy" and run ads blaming Biden for it.

The Biden administration on Friday urged Republicans to drop any plans they have to hold the nation's economy hostage, saying it has no intention to conduct debt ceiling negotiations and calling on lawmakers to raise the nation's borrowing limit to preserve its credit.

"We have seen both Republicans and Democrats come together to deal with this issue," White House spokesperson Karine Jean-Pierre told reporters. "It is one of the basic items that Congress has to deal with and it should be done without conditions."

In a joint statement, Senate Majority Leader Chuck Schumer (D-N.Y.) and House Minority Leader Hakeem Jeffries (D-N.Y.) said Friday that "a default forced by extreme MAGA Republicans could plunge the country into a deep recession… Democrats want to move quickly to pass legislation addressing the debt limit so there is no chance of risking a catastrophic default."

As many observers pointed out repeatedly in the aftermath of the midterm elections, Democrats had the power to prevent this high-risk game of brinkmanship from proceeding any further by raising the debt ceiling—or abolishing it altogether—when they still controlled both chambers of Congress.

Despite ample warnings from Warren and other progressive lawmakers and advocacy groups, conservative Democrats refused to take unilateral action during the lame-duck session.

In the absence of congressional action, Yellen—who has supported proposals to permanently eliminate the federal government's borrowing cap as most countries around the world have done—still has the authority to avert an economic calamity by minting a trillion-dollar platinum coin.

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