Daily Management Review

US Treasury Secretary Yellen Says US Debt Default Will Result In An 'Economic Catastrophe'


US Treasury Secretary Yellen Says US Debt Default Will Result In An 'Economic Catastrophe'
Janet Yellen, the secretary of the U.S. Treasury, issued a warning on Tuesday, stating that the failure of Congress to raise the government's debt ceiling and the ensuing default would result in a "economic catastrophe" and higher interest rates for years to come.
In prepared remarks for a Washington event with Californian business leaders, Yellen claimed that a default on U.S. debt would lead to job losses as well as higher household payments on mortgages, auto loans, and credit cards.
She asserted that raising or suspending the $31.4 trillion borrowing limit was a "basic responsibility" of Congress and cautioned that a default would jeopardise the economic gains earned by the US since the COVID-19 epidemic.
"A default on our debt would produce an economic and financial catastrophe," Yellen told Sacramento Metropolitan Chamber of Commerce members. "A default would raise the cost of borrowing into perpetuity. Future investments would become substantially more costly."
According to her, if the debt ceiling is not lifted, American companies will see deteriorating credit markets and the government will probably be unable to pay Social Security benefits to retirees and military families.
"Congress must vote to raise or suspend the debt limit. It should do so without conditions. And it should not wait until the last minute."
Without raising the ceiling, which the government had already reached in January, Yellen informed legislators in January that the government could only pay its bills through early June.
The United States has a strict cap on the amount it can borrow, unlike the majority of other affluent nations. The debt ceiling must occasionally be raised by politicians because the government spends more than it collects.
Kevin McCarthy, the speaker of the House of Representatives under Republican rule, unveiled a proposal last week that would combine $4.5 trillion in spending cuts with a $1.5 trillion rise in the debt ceiling. He said the proposal would serve as the framework for negotiations in the weeks to come.
The Democratic-controlled Senate is certain to reject the idea, and the White House believes the two topics shouldn't be related.
Financial analysts are warning about the rising possibility of default as financial markets become more and more anxious about the standoff. As a result, the cost of insuring exposure to U.S. debt has reached its highest level in a decade.