Treasury Secretary Janet Yellen speaks before Senate, warns upcoming debt default would “eviscerate” economic recovery

The loudest voice on Capitol Hill today belongs to Janet Yellen, Secretary of the Treasury Department.

At 10AM this morning, Secretary Yellen began her testimony on the state of our COVID economic recovery as of November 30 before the Senate Committee on Banking, Housing, and Urban Affairs.


Amid largely positive reports about job recovery and our recent infrastructure package passage, she issued yet another sharp warning about the impact next month’s debt ceiling vote could have on our “remarkable” economic bounce-back from COVID:

“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.  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.

As hopeful as the past month has been for our country, Yellen has repeatedly stated our recovery will mean absolutely NOTHING if the partisan stand-off over raising the debt ceiling continues. 

In a November 16 letter to House Speaker Nancy Pelosi, Yellen estimated the Treasury would be able to fund the federal government until December 15.  After this date, it is unclear how long we will continue to be able to fund our country’s critical programs—including Social Security.


As of today, we are still left hanging on the words of Senate Minority Leader Mitch McConnell:

“I am writing to make it clear that in light of…my grave concerns about the ways that another vast, reckless, partisan spending bill would hurt Americans…  Your lieutenants on Capitol Hill now have the time they claimed they lacked to address the debt ceiling through standalone reconciliation, and all the tools to do it. They cannot invent another crisis and ask for my help.”

It can’t be stressed enough next month’s debt ceiling vote is NOT the same stand-off we’ve seen previously in past administrations’ government shutdown events.

There have been 21 government shutdowns in our history, most recently occurring in the Trump, Obama, and Clinton Administrations.  These shutdowns—perilous as they might have been to both working and retired Americans—were simply the result of failing to reach an agreement on what the federal budget should look like.  Once an agreement was reached, furloughs ended and the federal government furnished workers and federal programs with backpay for the time period the government was shut down.

These shutdowns were NOT the result of failing to increase the federal debt, something that would cause a federal default, damage the full faith and credit of the United States, and likely trigger a massive economic recession.  The United States has NEVER failed to increase the debt ceiling when needed.  Not only would failing to do so cause the same shutdowns we saw in our last two administrations, but it would cause unspeakable long-term damage to our economy.  Political squabbling aside, defaulting on the national debt has never happened in our history.  Because it has NEVER been an option.

If the Senate Minority Leader remains true to his words in October—his words themselves being entirely unprecedented on their own—Americans are headed for big, big trouble next month.  This is not simply an internal budget dispute.  Failing to pay our debts as a country has international consequences that will affect us far longer than the days to weeks our shutdowns did.

Our country relies on our ability to borrow money when needed to make the most basic features of our government function.  For example, though Social Security is said to be a self-funding program—and it is, in theory—the reality is the government takes payroll taxes and invests them in the Treasury.  Our Social Security contributions are converted into Treasury notes to provide income for general spending in exchange for interest revenue when the notes are redeemed to pay benefits.

Because this is how we fund and increase the amount of money going into Social Security, Social Security benefits DEPEND on the federal government’s borrowing ability.  The Treasury spends our Social Security contributions and later BORROWS money to pay beneficiaries back with interest.

The federal debt ceiling is basically our nation’s credit line.  And the “bank” extending that credit line is the Federal Reserve, U.S. banks and investors, state and local governments, different investment funds, and foreign governments.

In the same way our individual credit ratings are penalized for the failure to pay our credit card bill on time, the U.S. government will be negatively impacted both at home and abroad for failing to pay theirs.  Not only will our lenders at home lose trust in the government’s ability to pay its obligations, but foreign lenders will for the first time in history not trust our borrowing integrity, either.

The fallout of such a scenario would be vast.  The interest we pay to lenders would skyrocket given our damaged credit rating, trickling down to Americans in countless ways.  The value of the bonds we give to bondholders would decrease.  And countries whose own economies rely on our ability to repay them, such as Japan whose ownership of our debt is equivalent to around 20% of its economic output, would be dragged down with us.

Our failure to pay our debts is NOT simply our problem.  It’s something that could cause a GLOBAL recession in the process.

And for seniors, this means NO SOCIAL SECURITY BENEFITS WOULD GO OUT.  Retirees would have to deal with the effects of COVID and the pressure of a recession WITHOUT their Social Security benefit checks.  If the federal government is permitted to max out its credit card, there will be NO money to pay beneficiaries.  Social Security payments would STOP.

Tomorrow we will enter the month a decision MUST be made to either increase the debt limit or choose default.  All we have right now is a hostile statement from the Senate Minority Leader that he will not entertain any bipartisan measure to lift the debt ceiling.

The next two weeks are VITAL to seniors, the United States, and the rest of the world.  And WE THE PEOPLE have a duty to ourselves and all those who will be impacted should default come to pass to MAKE OUR VOICES HEARD.

We need you—TODAY—to call your Senators.  This is the most important thing we have EVER asked of your as our reader, follower, subscriber, or donor.  In the next two weeks, we need THOUSANDS of Americans to contact their Senators.  We CAN’T overstate how catastrophic a potential default would be to seniors.  But this is also something that will hurt every single one of us, both in the United States and abroad.

And if you are a direct constituent of ANY Republican Senator, we need your help, especially.  The debt ceiling fight is occurring on a perfect line in the sand between the Senate aisles.  We are depending on those whose votes directly affect Republican Senators to reach out in massive numbers.

WE are NOT a partisan organization.  WE speak for ALL retirees and ALL seniors.  And we are asking you to join us right now to convince our Senators to start thinking like us and do what needs to be done to protect ALL seniors.

All you will need to do to help us make that message heard is to click the button below.  Our system will connect you directly with your Senators’ offices so you can tell them VOTE YES ON INCREASING THE DEBT CEILING.

Your call may be sent to your Senators’ offices voicemail inbox OR you may be greeted by a representative who answers your phone call. 

Should you have your call answered in real time by a representative in your Senators’ office, PLEASE stay on the line to make your voice heard.  Remember: your Senators work for YOU.  They are beholden to YOU.  This upcoming vote is too critical to Social Security beneficiaries to not speak your mind. 

Should a representative answer you call in real time, tell them how a shutdown could affect you and your loved ones. 

Tell them default is NOT an option for you. 

Tell them you will not accept ANY decision made by your elected officials that puts the Social Security YOU HAVE EARNED at risk.

Tell them seniors CANNOT afford to lose their income during a PANDEMIC.

Tell them you will remember how your Senators vote next election.

Tell them we have come too far as a nation in our economic recovery to throw it all away on a partisan economic stand-off.