Armfalcon.com, WASHINGTON — US Treasury Secretary Janet Yellen warned of the risk of a government debt default triggering a recession that could destroy many American jobs and businesses.
As reported from the page Reuters, Wednesday (17/6/2023) Yellen told a meeting of community bankers that the unprecedented economic and financial crisis could get worse. This is likely to cause disruption to federal government operations, including air traffic control, law enforcement, border security and national defense, and telecommunications systems.
“An accompanying financial crisis can multiply the severity of the downturn. It is very likely that we will see a number of financial markets break out with worldwide panic sparking margin callsto lower sales levels,” said Yellen.
Yellen told Congress that the Treasury Department is projected to be able to pay the United States government bills only through June 1 without increasing the debt limit. This adds to the pressure on Republicans in Congress and the White House to reach a deal in the coming days.
“Failure to reach an agreement will result in severe economic and financial consequences. Our economy will suddenly be in an unprecedented economic and financial storm,” he said.
Yellen said that as many as 66 million social security recipients and millions of veterans and military families would likely no longer be able to be subsidized. “And the income shock that occurs because of that could lead to a recession that destroys many American jobs and businesses,” he said.
Yellen said the impasse over the federal debt limit was already pushing borrowing costs higher and adding to the nation’s debt burden. It pushed Congress over a debt ceiling in 2011 that led to the first downgrade of the United States’ credit rating.
“Time is running out. Every day that Congress doesn’t act, we are running into increasing economic costs that can slow the US economy,” Yellen said.
“The US economy hangs in the balance. The livelihoods of millions of Americans do too. There is no time to waste. Congress must address the debt limit as soon as possible,” he said.
Yellen said the 2011 crisis, when lawmakers raised the debt limit shortly before the government had to stop making payments, showed the serious impact of not acting sooner. As a result, consumer confidence fell more than 20 percent, while the S&P 500 stock index fell 17 percent, and mortgage and auto borrowing costs rose.
“Allowing the US to default will harm the country’s reputation and undermine the foundations of US global economic leadership,” he said.
Investors have become more reluctant to hold government debt maturing in early June. The impasse increased the overall debt burden. US banking is also under threat after the crisis that hit made a number of them bankrupt.
However, Yellen still gives an optimistic assessment of the health of US banks. Many will still post higher net incomes in 2022 than before the pandemic.