US president accepted the failure of Congress to deal with the crisis before the treasury runs out of money for all the governmental expenses. This has risked the economy into a recession possibility.
In a dire warning to the United States government, Treasury Secretary Janet Yellen has stated that a default on the country’s $31.46 trillion debt could trigger a global financial crisis.
Yellen’s warning comes as the US Congress faces a deadline to raise the country’s borrowing limit, which is currently set at $28.4 trillion. Failure to raise the limit could result in the US defaulting on its debt for the first time in history, a move that Yellen warns could have catastrophic consequences.
“A default would be unprecedented and has the potential to have a catastrophic impact on not just financial markets but also on jobs, savings, and economic growth,” Yellen said in a letter to Congress.
Yellen’s letter comes as the Treasury Department has taken a series of measures to prevent the US from defaulting on its debt, including suspending certain investments in federal employee retirement funds and taking other emergency measures. But these measures can only buy the government a few months of additional time before a default becomes inevitable.
The consequences of a default would be felt not only in the US but also around the world. The US dollar is the world’s reserve currency, meaning that it is widely used in international transactions and is considered a safe haven by investors. A default could lead to a loss of confidence in the US dollar, causing it to weaken and potentially triggering a global financial crisis.
“The United States has always paid its bills on time and it is imperative that we continue to do so,” Yellen wrote in her letter. “Any delay in raising the debt ceiling would cause irreparable harm to the US economy and global financial markets.”
Yellen’s warning comes as the US economy continues to recover from the COVID-19 pandemic, with the country’s unemployment rate falling and economic growth accelerating. But a default could put all of this progress in jeopardy, leading to a recession and potentially derailing the global economic recovery.
As Congress debates the debt ceiling, Yellen’s warning serves as a stark reminder of the potentially catastrophic consequences of a US default. It is up to lawmakers to take action to prevent this worst-case scenario from becoming a reality.