US Treasury Secretary: Debt default is an economic and financial catastrophe

US Treasury Secretary Janet Yellen warned today that a US debt default would lead to “economic and financial catastrophe,” stressing that raising or suspending the debt ceiling should be “unconditional.”
Her comments came during an event in Washington after Republican House Speaker Kevin McCarthy vowed Sunday to hold a vote this week on a bill that would raise the debt ceiling while cutting public spending, despite President Joe Biden’s calls for an unrestricted increase in borrowing.
The United States reached the borrowing limit of $31.4 trillion in January, prompting the Treasury Department to take extraordinary measures that allow it to continue financing government activities.
But if Congress does not raise or suspend the debt ceiling before the current tools are exhausted, the government will risk defaulting on its obligations by July, with dire economic repercussions.
“In my estimation — and that of economists across the board — a default on our debt would spell economic and financial disaster,” Yellen said.
Among the possible repercussions mentioned by the minister is a rise in the installments of mortgages, car loans and credit cards.
The federal government may also be unable to issue payments to millions of Americans, including those who rely on Social Security.
“This economic disaster is preventable,” said Janet Yellen.
“The solution is simple: Congress should vote to raise or suspend the debt ceiling. It should do so without strings attached. It should not wait until the last minute.”
In the long run, default will also increase the cost of borrowing.
Moody’s Analytics said in a note on Monday that the plan proposed by House Speaker Kevin McCarthy to raise the debt ceiling in return for cutting government spending would slow growth and the labor market.
If the draft McCarthy submitted on April 17 is approved in its current form, it would result in a 0.6 percentage point drop in potential US growth for 2024, and 780,000 job cuts, according to Moody’s Analytics.
Speaking of other issues, Yellen said the Biden administration’s top economic priority is curbing inflation while preserving the gains made in the past two years.

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2023-04-25 16:30:36