WASHINGTON: US Treasury Secretary Janet Yellen has warned that failure by Congress to raise the government’s debt ceiling – and the resulting default – would lead to an “economic catastrophe” that would send interest rates higher in the coming years.
In a prepared speech to a Washington event with business executives from California, Yellen said a default on US debt would result in job losses, while driving a jump in household payments on mortgages, auto loans and credit cards.
She said it was a “basic responsibility” of the House to increase or suspend the $31.4 trillion borrowing cap, warning that a default would threaten the economic progress made by the United States since the COVID-19 pandemic.
“A default would raise the cost of borrowing into perpetuity. Future investments would become substantially more costly,” Yellen told Sacramento Metropolitan Chamber of Commerce members.
If the debt ceiling is not raised, businesses in the US will face deteriorating credit markets, and the government might not be able to issue payments to military families and seniors who rely on Social Security, she said.
She called on Congress to vote to raise or suspend the debt limit, adding, “It should do so without conditions. And it should not wait until the last minute.”
In January, Yellen told lawmakers that the government could pay its bills only through early June without increasing the limit, which it hit in January.
The US, unlike most other developed countries, puts a hard limit on how much it can borrow. As the government spends more than it takes in; therefore, lawmakers must periodically raise the debt limit.
