The United States is facing a potential global economic crisis as it approaches a catastrophic default on its $31.46 trillion debt, according to US Treasury Secretary Janet Yellen. Yellen issued a series of increasingly dire warnings ahead of a meeting in Japan with her counterparts from the Group of Seven (G7) nations, as well as India, Indonesia, and Brazil. She urged Congress to raise the federal debt limit to avert an unprecedented default that could trigger a global economic downturn and undermine US global economic leadership.
Yellen emphasized the significant risks associated with a default, stating that it could jeopardize the progress made in the pandemic recovery efforts and lead to a global downturn of unprecedented magnitude. She further expressed concerns about the potential implications for US national security interests and the country’s ability to defend them. Yellen’s remarks were made in preparation for a press conference preceding her meeting with G7 and other world leaders.
US President Joe Biden echoed Yellen’s warnings, stressing that a failure by Congress to act before the Treasury runs out of funds to pay government bills could plunge the US economy into a severe recession. Biden emphasized that the situation is time-sensitive, with the Treasury potentially running out of money as early as June 1. He is set to meet with top Democratic and Republican congressional leaders to address the issue.
Yellen criticized Republican lawmakers, describing their handling of the debt ceiling issue as a “crisis of our own making.” She cautioned that even the threat of a default could lead to a downgrade of the US government’s credit rating, as seen during the 2011 debt ceiling fight. Yellen highlighted the potential impact on interest rates for mortgages, auto loans, and credit cards, which are already showing signs of increase in anticipation of the approaching deadline.
To mitigate the risks associated with the debt ceiling standoff, Yellen emphasized the importance of global cooperation and action. She outlined her priorities for the G7 meeting, including efforts to strengthen the global economy, combat inflation, support Ukraine in its defense against Russia, and enhance economic resilience. Yellen also stressed the need to assist developing countries in managing their debt and urged G7 members to coordinate efforts for timely and comprehensive debt treatments.
As the US faces the imminent risk of default, the world anxiously awaits a resolution from Congress. The consequences of inaction could have far-reaching implications, affecting not only the US economy but also the stability of the global financial system. Urgent action is needed to avert a potentially devastating global crisis.
