Yellen warns failure to deal with debt limit would 'eviscerate' economic recovery

Treasury Secretary Janet Yellen is seen during a Senate Banking, Housing, and Urban Affairs Committee hearing to discuss oversight of the Department of Treasury and Federal Reserve over the CARES Act on Tuesday, November 30, 2021.

Treasury Secretary Janet Yellen on Monday warned senators that failing to reach a deal on raising the debt limit could "eviscerate" the recovery of the U.S. economy.

Yellen gave this message while addressing the Senate Committee on Banking, Housing, and Urban Affairs. She has issued similar notices in the time since the Senate reached a short-term debt hike to last until Dec. 15.

Speaking to the committee, Yellen noted November numbers that showed around 531,000 jobs were added in the past month and stated, "Our economic recovery is on track."

"At this point, I am confident that our recovery remains strong and is even quite remarkable when put it in context. We should not forget that last winter, there was a risk that our economy was going to slip into a prolonged recession, and there is an alternate reality where, right now, millions more people cannot find a job or are losing the roofs over their heads," said Yellen.

In order to keep the country on track towards economic recovery, Yellen said Congress needed to raise the debt ceiling.

"I cannot overstate how critical it is that Congress address this issue. America must pay its bills on time and in full. If we do not, we will eviscerate our current recovery," she said. "In a matter of days, the majority of Americans would suffer financial pain as critical payments, like Social Security checks and military paychecks, would not reach their bank accounts, and that would likely be followed by a deep recession."

Yellen has previously spoken out against what she calls the "destructive" debt limit, which regularly needs to be extended to allow the government to function, and has called for it to be abolished. In testimony she gave in September, she argued that it made no sense to place a limit on the Treasury's ability to pay expenses that have already been approved by Congress.

As of Monday, Congress does not appear to be close to reaching a deal on raising the federal debt limit. The Treasury Department can normally take "extraordinary measures" to buy time for a deal after an initial deadline, but Yellen warned earlier this month that the recently passed bipartisan infrastructure bill had limited her flexibility.

"There are scenarios in which Treasury would be left with insufficient remaining resources to continue to finance the operations of the U.S. government beyond this date," she wrote to congressional leaders.