US Treasury Secretary Janet Yellen has warned about the serious economic and financial risks the country would face if it defaulted on its debt. Yellen has stressed the importance of Congress acting without conditions and raising or suspending the debt limit, which was reached in January 2021, before the current tools to finance the government’s activities are exhausted. Republicans, for their part, demand a drastic cut in government spending before allowing any increase in the debt issuance ceiling.
The Biden administration runs the risk of not being able to meet its payment obligations after July if the debt ceiling is not raised. If this happens, there will be serious consequences for the US economy and the world at large, according to Yellen. In particular, payments on mortgage payments, auto loans, and credit cards would increase, while businesses could experience a decline in credit conditions. The federal government could also have difficulty making payments to millions of Americans, including those who rely on Social Security.
All in all, the situation is very worrisome, and the Treasury Secretary has insisted that a default on US debt would produce an “economic and financial catastrophe,” in the view of economists generally. It is therefore vital that Congress take urgent and effective action to avert an economic crisis that would have unpredictable consequences for the country and the world.
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