A default in the US could lead to a global catastrophe • ForexTalker

A default in the US could lead to a global catastrophe

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Speaking at a conference in Washington on Tuesday evening, US Treasury Secretary Janet Yellen warned that a default on the national debt would be a catastrophe for the US economy, leading to mass unemployment, defaults, and a permanent rise in interest rates.

“Since 1789, the US has always paid its bills on time, and it should remain that way,” Yellen said.

She also emphasized how catastrophic the consequences would be for the economy if the US were unable to meet its debt obligations, as negotiations over raising the debt ceiling have stalled.

On Wednesday, the House of Representatives approved a bill to raise the debt ceiling by $1.5tn due to the looming threat of default.

Specifically, she said that default would lead to the government being unable to fund its armed forces and social programs, and that massive layoffs of government employees would be expected. Yellen also warned that households would risk being unable to pay mortgages, car loans, and credit card debts, leading to a collapse of the US credit market.

She also warned that interest rates could rise indefinitely. “Defaulting on our debt would lead to an economic and financial catastrophe,” Yellen added.

The US Treasury Secretary then reminded that this economic catastrophe can be avoided, and the solution is simple. Congress must vote to raise or suspend the debt limit, and it must do so unequivocally, without waiting until the last minute.

Last week, House Speaker Kevin McCarthy proposed legislation that would cut $4.5tn in government spending in order to raise the debt limit by $1.5tn.

Eventually, the US Treasury took extraordinary measures to avoid an immediate budget crisis that will last just a few months, with the risk of default this summer if politicians fail to reach an agreement.