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Yellen Won't Negotiate about the Debt Limit

One of the key players in the upcoming debt-limit fight is Treasury Secretary Janet Yellen. Joe Biden is already deploying her to get a head start on the battle. During the weekend she gave a speech in which she said that she was prepared to negotiate with the Republicans over the deficit but not over the debt. She asked the Republicans to come up with a plan for next year's spending, but she said the United States "can't bargain over whether or not we're going to pay our bills. It's simply a fundamental responsibility a government has."

It is likely that she will bring up her willingness to negotiate about the budget but not about the debt many times going forward, because Republicans are trying to confuse voters about what the debt battle actually is about. It is about paying for programs that Congress approved in the past. It is not about future spending. Many voters do not understand that crucial difference. After all, both "debt" and "deficit" begin with a "d."

Yellen also said that when Tax Day comes and goes, she will have a better idea of how long she can find tricks to keep the debt under the legal limit. She thinks she could manage it until June. The Congressional Budget Office thinks she might be able to make it to September.

It is very unlikely that Biden and Yellen will allow the country to default on its debt. If the Republicans refuse to budge, there are three potential ways out. One is to convince five House Republicans to vote with the Democrats to increase the debt limit with no conditions. Since 18 House Republicans are in districts that Biden won, he may have some leverage with them (e.g., promising not to personally campaign in their districts if they vote with the Democrats and promising to definitely campaign in their districts if they refuse).

Another one is to claim that the Fourteenth Amendment's provision that the public debt shall not be questioned means that the Treasury can just continue to issue debt since the Constitution overrides any mere law. The third option is to issue one or more trillion-dollar coins and deposit them in the Fed's bank account. But these are clearly last resorts. Biden would clearly prefer to make some deal about next year's spending in return for a clean debt-limit increase rather than use the latter two approaches. (V)

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