Biden, McCarthy to satisfy on debt restrict as Yellen warns of penalties

By Andrea Shalal and Jeff Mason

DAKAR/WASHINGTON (Reuters) -Treasury Secretary Janet Yellen on Friday warned that the U.S. authorities can’t select to pay some payments over others if Congress fails to lift the borrowing restrict, as President Joe Biden and high Republican Kevin McCarthy made plans to satisfy to debate the difficulty.

Chatting with reporters in Senegal, Yellen warned that Washington might spur a world monetary disaster and undermine the function of the greenback if it doesn’t increase the $31.4 trillion debt restrict. She stated the Treasury Division can’t prioritize its funds, as some Republicans have instructed.

“Treasury techniques have all been constructed to pay our payments, to pay all of our payments when they’re due and on time, and to not prioritize one type of spending over one other,” she stated.

Authorities officers and outdoors consultants say that prioritizing sure funds over others would mark a radical departure that seemingly would shake international economies.

Biden, in the meantime, instructed a gathering of U.S. mayors that “we’ll have a dialogue” with Republican Home of Representatives Speaker McCarthy about elevating the U.S. debt ceiling.

McCarthy stated on Twitter he would meet Biden to “focus on a accountable debt ceiling enhance to deal with irresponsible authorities spending.”

It was unclear when the dialog would happen or what message Biden intends to ship to McCarthy, who’s below strain from far-right Republicans to withhold motion on a debt restrict enhance till vital U.S. finances cuts are first sketched out.

White Home officers have beforehand stated they won’t negotiate over elevating the debt ceiling, and administration officers are betting that Republicans will ultimately buckle below strain from traders and companies frightened in regards to the prospects of default.

The U.S. authorities hit its $31.4 trillion borrowing restrict on Thursday, a determine that displays cash already spent by the federal government. Yellen has knowledgeable congressional leaders that her division had begun utilizing extraordinary money administration measures to stave off default till early June.

Yellen’s remarks got here as she kicked off a 10-day journey to Africa to debate financial progress on the continent.

However the percolating battle over the U.S. debt restrict later this 12 months already is rattling markets and traders. They’re frightened over the prospects of an historic default by Washington if finances disagreements can’t be ironed out.

Yellen stated in an interview with CNN {that a} potential U.S. default might harm the worldwide economic system.

“It might trigger a world monetary disaster. It might definitely undermine the function of the greenback as a reserve forex that’s utilized in transactions all around the world,” she stated, including that in such a situation many individuals would lose their jobs and see their borrowing prices rise.

Yellen famous the debt ceiling must be raised to cowl borrowing on spending already approved by Congress.

“It’s merely about paying payments Congress has already approved,” she instructed CNN. “That is one thing you may’t negotiate over or discount about.”

Former President Donald Trump, who already launched a 2024 marketing campaign for the White Home, urged fellow Republicans to again away from looking for cuts that he stated would “destroy” the favored Social Safety program for retirees and the Medicare well being program for these age 65 and older.

(Reporting by Andrea Shalal, Kanishka Singh, Jeff Mason, Steve Holland, David Morgan and Richard Cowan; modifying by Caitlin Webber, Diane Craft, Paul Simao and Invoice Berkrot)