Yellen says Treasury doesn’t prioritize certain payments

“Breach by USA of any obligation—whether to debt holders, to members of our military, or to Social Security recipients—is effectively a default.”Yellen said Friday while speaking to reporters in Dakar, Senegal. The congress “You can’t really negotiate on whether or not we’re going to meet our obligations. They are simply the laws we have. I will also say that all Treasury systems have been built to pay all of our bills when due and on time, and not to prioritize one form of spending over another.”

Some House Republicans, as well as some analysts, have floated the idea that the Treasury Department could, if necessary, prioritize some payments, perhaps interest on US Treasury bonds, if it’s too close. from running out of liquidity, thereby reducing the damage inflicted on financial markets.

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The Treasury chief reported Thursday in a letter to congressional leaders that the federal debt limit had been reached and that her department had begun using special measures to prevent a US default. In an earlier letter, Yellen told lawmakers that the so-called extraordinary measures would likely allow the Treasury to keep covering its bills until early June, but cautioned that that estimate is “subject to considerable uncertainty”.

The Treasury probably now has $350 billion to $400 billion of margin available in total, said Gennadiy Goldberg, senior US rates strategist at TD Securities. This, along with the inflow of revenue from personal income taxes due in April, should allow the Treasury to see through July or August without running out of liquidity.

If an agreement is not reached in Congress to raise the limit, the US government would default, which could trigger a crisis in the US Treasury bond market, which serves as a reference for debt securities around the world.

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