Home / World Economy / World Economy News / U.S. default would cause ‘irreparable’ harm, Yellen warns again

U.S. default would cause ‘irreparable’ harm, Yellen warns again

Treasury Secretary Janet Yellen agreed that any default on the US debt would cause irreparable damage as well as the ensuing financial crisis and recession.

Yellen, asked by a member of the House Financial Services Committee whether the damage caused by the federal government’s failure to meet debt obligations would be “irreparable,” answered: “Yes.”

His remarks were the latest in a series of dire warnings Yellen issued over whether to lift or suspend debt limits amid wrangling over the Democratic majority and the Biden administration’s legislative agenda.

Yellen has said the government will run out of cash around October 18 unless Congress raises the federal debt limit, which currently stands at $28.4 trillion. After that date, the Treasury would be “simply in an impossible position,” Yellen said Thursday during an appearance before the committee. “We won’t be able to pay all the government bills.”

The loan limit went into effect in August after a two-year suspension, and the Treasury Department is taking “extraordinary measures” to fund the government. Yellen told lawmakers earlier this week that those measures would end around mid-October, earlier than most analysts had expected, after which the government would have insufficient funds to meet all of its obligations, That includes everything from Social Security payments to principal and interest. On Treasury bills, notes and bonds.

Failure to meet those obligations would mark the first time a US default, which Yellen has repeatedly said would be “a catastrophe”.

“We are likely to end up with a financial crisis, certainly a recession,” Yellen told the House committee on Thursday. It would also have “long-term consequences of higher interest rates for everyone who borrows”.

This is because the US credit rating will certainly be lowered, and international creditors that have long held Treasury debt by virtue of being backed by the “full faith and credit” of the US government can now consider those securities “risk-free”. as will not be seen. That would make it more expensive for the federal government — and everyone else — to borrow.

Federal Reserve Chairman Jerome Powell said the ability of the US central bank to prevent the repercussions of such an event is limited.

“No one believes we can really do much,” Powell told lawmakers on Thursday. “No one should assume that the Federal Reserve or anyone else can protect the American people from its consequences.”
Source: Reuters (Reporting by Dan Burns; Editing by Chizu Nomiyama and Andrea Ricci)

Recent Videos

Hellenic Shipping News Worldwide Online Daily Newspaper on Hellenic and International Shipping