‘Financial and Economic Chaos Would Ensue’ If U.S. Fails to Raise the Debt Limit
Even waiting for the last minute to solve problem could cause damage, Treasury chief says
There should be no mistake if Congress does not pass an increase to the federal debt ceiling, according to Treasury Secretary Janet Yellen.
And the effects would be catastrophic.
The federal government has hit its cap on paying its bills, and the extraordinary measures which Yellen has been using in the meantime will run out as early as June 1.
Although Congress has approved an increase in the government's debt limit dozens of times under presidents of both parties in past decades, McCarthy and other House Republicans want to hold such an increase hostage to Biden and Democrats agreeing to a raft of draconian cuts in federal spending.
The president, however, has ruled out any such negotiations while using the debt ceiling as a political weapon.
And Yellen Sunday outlined just what would happen if the debt limit is not increased in time.
Virtually no American would be left untouched.
“Well, Treasury finds itself in a position where we’re unable to pay all of the bills that come due that day. And this would be really the first time in the history of America that we would fail to make payments that are due,” she said. “And, you know, whether it’s defaulting on interest payments that are due on the debt or payments due for Social Security recipients or to Medicare providers, we would simply not have enough cash to meet all of our obligations. And it’s widely agreed that financial and economic chaos would ensue.
“U.S. Treasury securities are the safest bedrock security underlying the global financial system. A failure of the United States to honor all of its debt would call into question our credit worthiness,” Yellen added, during an on-camera appearance on the ABC News program, This Week. “Even as we get very close to this date, if Congress doesn’t act, we're likely to see financial market consequences.”
Yellen also recalled the effects from the last time Democrats and Republicans waited until the last minute to take action on the debt ceiling during the Obama administration in 2011.
“In 2011, there was a steep decline in the stock market and our borrowing costs. Back in 2011, the U.S. was downgraded by the credit rating agencies,” she said. “There would be permanently higher borrowing costs for Americans for buying a home, buying a car. And a failure to raise the debt ceiling would cause a steep economic downturn."
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