Daily Management Review

US Treasury Secretary Yellen Cautions A US Default Would Endanger The World Economy And Compromise US Leadership


US Treasury Secretary Yellen Cautions A US Default Would Endanger The World Economy And Compromise US Leadership
On Thursday, U.S. Treasury Secretary Janet Yellen urged Congress to increase the $31.4 trillion federal debt ceiling in order to prevent an unprecedented default that would send the world economy into a tailspin and jeopardise American economic dominance.
In remarks prepared for a news conference prior to a meeting in Japan with her counterparts from the Group of Seven (G7) rich nations, as well as India, Indonesia, and Brazil, Yellen offered the latest in a series of increasingly dire warnings.
"A default would threaten the gains that we've worked so hard to make over the past few years in our pandemic recovery. And it would spark a global downturn that would set us back much further," she said. "It would also risk undermining U.S. global economic leadership and raise questions about our ability to defend our national security interests."
President of the United States Joe Biden stated on Wednesday that the United States risks entering a recession if Congress does not act before the Treasury runs out of money to pay the government's debts, which could occur as early as June 1.
Yellen claimed that Republican brinkmanship on the matter amounted to a "crisis of our own making" and that only the possibility of a default might cause the U.S. government's credit rating to be lowered, as happened during a debt ceiling fight in 2011.
Yellen said that rates were already rising on debt due around June 1 and that it might lead to higher interest rates on credit cards, auto loans, and mortgages.
The debt ceiling, which reflects already spent federal funds, must be raised by Congress, according to Democratic presidential candidate Joe Biden, but Republicans who control the House of Representatives have connected any rise in the debt limit to significant budget cuts.
The United States places a limit on the amount it can borrow, unlike the majority of modern nations. Legislators are required to raise that ceiling from time to time since the government spends more than it collects.
Yellen also outlined her top priorities for the G7 summit, including longer-term initiatives to increase economic resilience and short- and long-term efforts to improve the global economy and lower inflation. She also reiterated her commitment to assisting Ukraine in defending itself against a Russian invasion.
Despite the dangers, Yellen claimed that the world economy was nevertheless doing better than many had anticipated six months prior, with most G7 nations experiencing a decline in annual headline inflation and stronger growth projections.
After the failure of three regional banks, the United States had taken steps to increase public confidence in its banking system, according to Yellen, as well as passed legislation encouraging investment in infrastructure, renewable energy, and semiconductors.
The G7 nations would coordinate their efforts to press for "timely and comprehensive" debt solutions for countries in economic trouble, she added, noting that it was particularly crucial to assist developing countries.
China, the biggest sovereign creditor in the world, has been charged by Yellen with routinely delaying the implementation of such agreements.
Yellen also stated that she will collaborate with her G7 counterparts to increase domestic production of essential products and support developing nations in increasing their participation in global supply chains in order to enhance longer-term economic resilience.
She explained that this involved assisting those nations to transition away from "exclusively extractive industries" and towards "activities that provide greater support for the domestic economy and employment."
Yellen did not provide any additional information, but she did state that the project would build on the $600 billion in investments already made through the G7's Partnership for Global building and Investment, which attempts to mobilise private financing for building projects in underdeveloped nations.
Yellen cited a speech she gave last month in which she stated that Washington would oppose Chinese efforts to dominate foreign rivals and that the G7, which consists of the U.S., Japan, Germany, Britain, France, Italy, and Canada, would continue to work to mitigate geostrategic risks and counter economic coercion.