Possible US Default ‘Would Spark Global Downturn’, Yellen Warns
US Treasury Secretary Janet Yellen speaks during a press conference at the G7 meeting of Finance Ministers and Central Bank Governors at Toki Messe in Niigata on May 11, 2023InternationalIndiaAfricaOleg BurunovEarlier this month, the US Treasury Secretary insisted that her country might run out of options for paying its debt obligations as soon as June 1 if congressional lawmakers fail to act and raise the country’s debt ceiling.US Treasury Secretary Janet Yellen has warned that political brinkmanship over increasing the US debt ceiling may prompt far-reaching economic repercussions, even without the “catastrophe” of a default.
"In my assessment – and that of economists across the board – a default on US obligations would produce an economic and financial catastrophe," she said during a speech at a G7 meeting of finance ministers and central bank chiefs in Niigata, Japan on Thursday.
According to the Treasury Secretary, “Short of a default, brinkmanship over the debt limit can also impose serious economic costs.”
Additionally, Yellen cautioned that a possible default in America “would spark a global downturn” and “would also risk undermining US global economic leadership and raise questions about our ability to defend our national security interests.”
When asked whether there was a long-term fix to the recurring debt-ceiling issue, Yellen called for the US legislature to do away with the process of setting a cap on government borrowing.“Personally, I think we should find a different system for deciding on fiscal policy. Congress could repeal a debt ceiling or handle it differently,” she pointed out.The remarks come a few days after the Treasury Secretary made it clear that US President Joe Biden may invoke the amendment to the US constitution that allows him to avoid default, bypassing the position of the US Congress.”We should not get to the point, where we need to consider whether the president can go on issuing debt, this would be a constitutional crisis,” Yellen told a US broadcaster.
The 14th amendment provides that "the validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned." This section allows the country's president to resolve the debt issue without consulting the US Congress.
Earlier in May, Yellen wrote in a letter to Congress that “After reviewing recent federal tax receipts, our best estimate is that we will be unable to continue to satisfy all of the government’s obligations by early June, and potentially as early as June 1, if Congress does not raise or suspend the debt limit before that time.”Sputnik ExplainsWhat Should Americans Brace For on the Brink of Default?8 May, 12:30 GMTRepublican congressional leaders have, meanwhile, told reporters after a recent meeting with Biden and Democrat leaders that there was no new movement on the negotiations to raise the debt ceiling.”I didn’t see any new movement. I would hope that he would be willing to negotiate for the next two weeks so we could actually solve this problem and not take America on the brink,” US House Speaker Kevin McCarthy said, in a nod to POTUS.With the House GOP members demanding linking a rise in the debt ceiling to spending cuts, and Biden seeking to rule out any such preconditions, the tussle will almost certainly to continue in the days to come. Since January, the US has been operating under “extraordinary measures” after the country hit its $31.4 trillion debt limit.