WASHINGTON: A US debt default would trigger an “economic and financial catastrophe,” Treasury Secretary Janet Yellen said in prepared remarks Tuesday, stressing that action to raise or suspend the debt limit should be “without conditions.”
Her comments at an event in Washington come as the top congressional Republican vowed Sunday to hold a vote this week on lifting the debt ceiling and curbing spending — despite President Joe Biden’s calls to increase borrowing with no strings attached.
The United States hit its $31.4 trillion borrowing limit in January, prompting the Treasury to take extraordinary measures that allow it to continue financing the government’s activities.
But if the debt ceiling is not raised or suspended by Congress before current tools are exhausted, the government risks defaulting on payment obligations as early as July, with profound implications for the economy.
“In my assessment — and that of economists across the board — a default on our debt would produce an economic and financial catastrophe,” Yellen said in remarks Tuesday.
Among the potential consequences she listed were higher payments on mortgages, auto loans and credit cards, while businesses could see credit markets worsen.
The federal government could also become unable to issue payments to millions of Americans including those who rely on Social Security, she said.
“This economic catastrophe is preventable,” she said. “The solution is simple: 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,” she added.
In the longer term, a default also stands to increase the cost of borrowing into perpetuity, and future investments could become more expensive.
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