As Congress faces an early June deadline to raise the debt limit, Treasury Secretary Janet Yellen warned that high levels of debt are not sustainable, but she wasn't referring to U.S. debt.
Speaking Thursday at a keynote Q&A session hosted by the Center for Strategic and International Studies, Yellen acknowledged that "when a country's debt load reaches a certain level it really makes it unsustainable." But her comments were made in the context of a discussion about African countries that are restructuring their debt. Yellen mentioned that she recently met with officials from Zambia, which became the first African sovereign default in 2020 and held a debt-to-GDP ratio as high as 133% at the end of 2021, according to the International Monetary Fund (IMF).
"Debt is a huge issue, debt overhangs, huge issue for many African countries, and especially Zambia, that we visited," she said.
But she did not mention how massive federal spending is pushing the U.S. toward similarly unstable levels of debt.
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The Congressional Budget Office's most recent long-term outlook projected the U.S. national debt to equal 98% of GDP at the end of 2022. If nothing changes, the debt is forecast to grow to its historic high of 107% of GDP in 2031, and will reach 185% of GDP in 2052.
Government borrowing to cover Congress' spending obligations has already reached its statutory $31.38 trillion debt ceiling. The Treasury Department has resorted to "extraordinary measures" to avoid sovereign default and Yellen gave Congress an "early June" deadline to negotiate with President Biden to raise the debt limit.
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"I think everybody realizes that when a country’s debt load reaches a certain level it really makes it unsustainable," Yellen said, referring to African countries she met with and discussions with officials from the IMF and World Bank. "It’s not a question of just creditors making concessions to help the borrowers.
"Debt restructuring not only serves the interests of the borrowers, it also serves the interests of the creditors, because if the country is stopped from growing, developing, making investments to put it on a firmer economic course, at the end of the day, more restructuring will be necessary and the country will be less able to make payments to creditors. So, there’s a common interest in getting this done," she said.
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If the U.S. fails to raise the debt ceiling, the government may be forced to temporarily default on some of it spending obligations, which Yellen has previously warned would carry severe negative economic consequences. Interest rates would likely spike, and demand for Treasurys would drop; even the threat of default can cause borrowing costs to increase, according to the Committee for a Responsible Federal Budget.
While the U.S. has never defaulted on its debt before, it came close in 2011, when House Republicans refused to pass a debt-ceiling increase, prompting rating agency Standard and Poor's to downgrade the U.S. debt rating one notch.
Bipartisan spending over the last two decades has led the national debt to increase from about $10 trillion when President George W. Bush took office, to roughly $14 trillion when President Barack Obama followed suit, to $24 trillion when President Donald Trump began his term and more than $30 trillion at the start of President Joe Biden's administration.
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The national debt is currently more than $31.5 trillion.
FOX Business' Megan Henney and Eric Revell contributed to this report.
