Speaking to the Independent Community Bankers of America trade group on Tuesday, Treasury Secretary Janet Yellen warned that if the US fails to avoid a debt default, it could have far-reaching consequences, not just for the American economy, but for the global economy as well. In her remarks, she noted that “time is running out” for Congress to raise the nation’s $31.4 trillion borrowing limit.
For months, the Republican-controlled House of Representatives and US President Joe Biden have been at an impasse over the issue, despite the Treasury’s repeated warnings that without the ceiling being lifted, the US could be looking at its first-ever default on June 1st.
Yellen said, “Every single day that Congress does not act, we are experiencing increased economic costs that could slow down the US economy… It is essential that Congress act as soon as possible… A US default would generate an economic and financial catastrophe,” adding that the Treasury department is almost out of the emergency accounting measures it has been using in recent months to avoid seeing the nation fall into default.
She went on to point out that a default would stall all economic progress in the country, creating an “unprecedented economic and financial storm.” That would produce a loss of income, set off a recession in the US and produce massive damage to the global economy.
She stated, “The US Treasury market serves as the very bedrock of the global financial system… The world has never doubted that America will pay the principal and interest on its bonds, in full and on time… A default would crack open the foundations upon which our financial system is built,” adding that this could then set off “worldwide panic, triggering margin calls, runs, and fire sales.”
President Biden held a meeting with Republican House of Representatives Speaker Kevin McCarthy and three other top congressional leaders in search of a possible deal to raise the borrowing limit later on Tuesday. While President Biden said he was optimistic a deal could be reached, Speaker McCarthy said they were still quite far from having any working framework for a deal.
