As default looms, Yellen faces biggest test yet

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Ms. Yellen’s task was complicated by the fact that while she could easily express the economic risks of default, the debt limit found itself in a larger partisan battle across Mr. Biden, including the $ 3.5 trillion spending bill.

Republicans, including Mr. McConnell, have insisted that if Democrats are to pass a big spending bill, then they should take responsibility for increasing the borrowing limit. Democrats call the position nonsense, noting that the debt limit must be increased because of spending lawmakers, including Republicans, have already approved.

“It seems to be some kind of high-stakes partisan poker on Capitol Hill, and that’s not what she went through,” said David Wessel, senior economics researcher at the Brookings Institution who worked with Ms. Yellen at Brookings.

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As lawmakers bicker over Capitol Hill, Ms Yellen’s team at Treasury have tried to buy as much time as possible. After a two-year suspension of the legal debt limit that expired at the end of July, Ms. Yellen used an array of tax accounting tools known as “extraordinary measures” to avoid default.

The uncertainty over the debt limit has yet to scare the markets, but Ms. Yellen receives briefings several times a week from career staff on the state of the country’s finances. They keep it informed of the use of extraordinary measures, such as the suspension of investments of the Exchange Stabilization Fund and the suspension of the issuance of new securities for the Civil Service Retirement and Disability Fund, and close examination of the treasury’s cash balance. As corporate tax revenues arrive stronger than expected, the debt limit may not be exceeded until mid-October, Ms. Yellen told lawmakers.

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A spokeswoman for the Treasury said Ms Yellen was not considering fallback plans such as prioritizing debt payments if Congress didn’t act, explaining that the only way the government could tackle the cap of the debt was that lawmakers increase or suspend the limit. However, she reviewed some of the ideas that were developed by the Treasury during the 2011 debt limit standoff, when partisan politics brought the nation to the brink of default.

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A new report from the Bipartisan Policy Center has highlighted the fact that if Congress does not address the debt ceiling, Ms. Yellen will have no good options. If the real deadline is Oct. 15, for example, the Treasury Department would run out of $ 265 billion to pay all of its bills until mid-November. About 40 percent of the funds owed would remain unpaid.