Janet Yellen’s warning: Raise US debt ceiling or face economic catastrophe
Treasury Secretary Janet Yellen.
USTreasury Secretary Janet Yellen on Tuesday sounded the alarm on the urgent need for Congress to raise the government's debt ceiling, warning that failure could trigger an "economic catastrophe."
In a recent address to business executives in Washington DC, Yellen emphasised that defaulting on debt would have far-reaching implications that could impedethe country's economic recovery from the COVID-19 epidemic.
"A default on our debt would produce an economic and financial catastrophe," Reuters quoted Yellen telling members of theSacramento Metropolitan Chamber of Commerce.
Yellen, a former Federal Reserve chairperson, further stated that a default would raise borrowing costs in perpetuity and future investments would become significantly more expensive.
Arguing thatraising or suspending the existing borrowing cap of $31.4 trillion is the US Congress'responsibility, she asked lawmakersto act immediately to avert potential economic and financial market disruptions.
Raising the debt ceiling and rift in Congress
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Credit markets could deteriorate if the debt ceiling is not increased, making it harder for businesses to secure funding. Additionally, the government may be unable to issue timely payments to military families and seniors who rely on Social Security, causing financial hardships for vulnerable populations.
Raising the debt ceiling has been a divisive issue in the US Congress, with opposing views on how to proceed.
Kevin McCarthy, the Republican Speakerin the House of Representatives, recently suggested a plan that would combine $4.5 trillion in expenditure cuts with a $1.5 trillion rise in the debt limit. The White House under Democrat Joe Biden, however, believes that the two issues should not be linked, and the proposal is expected to be rejected by the Democratic-controlled Senate.
Financial markets have grown increasingly concerned about the deadlock, with the cost of insuring exposure to US debt reaching a decade high. Analysts have cautioned that the possibility of default is increasing, which could have serious consequences for global financial stability.