As of: 09/20/2021 2:15 p.m.
In harsh words, US Treasury Secretary Janet Yellen asks Congress to raise the debt ceiling. If not, there is a risk of a new historic financial crisis, warns Yellen.
US Treasury Secretary Janet Yellen has again urged Congress to raise the US debt ceiling. In an opinion piece in the “Wall Street Journal” (WSJ), the former head of the US Federal Reserve wrote that if the US could not meet its obligations, it would trigger a historic financial crisis.
“We would emerge from this crisis as a permanently weakened nation,” warns Yellen. The creditworthiness of the USA has so far been a strategic advantage, notes the Treasury Secretary, who speaks of an impending “economic catastrophe”.
A crisis caused by the U.S. government default would worsen the economic damage from the ongoing coronavirus pandemic, stir markets and plunge the American economy into recession. Millions of jobs would be lost and interest rates would rise permanently, according to the scenario described by Yellen.
Debate over debt ceiling
The US has a statutory limit on how much new debt the government can take to pay for its expenses. It is currently around $ 28.4 trillion. The limit is raised regularly – usually after tough negotiations – because Congress has to approve an increase. The US Congress consists of the two chambers of the Senate and the House of Representatives. President Joe Biden’s Democrats control the House of Representatives, but in the Senate they rely on Republican support.
If the upper limit is not increased, the state cannot borrow any more money, meet its obligations and also cannot service its old debts that are due. The USA would practically be insolvent – with all the dramatic consequences that this would have for the state, administration, military, social security, civil servants, citizens, the creditworthiness of the USA and the international financial markets. Most recently, then US President Donald Trump had suspended the debt limit in 2019 until the end of July 2021, thus just avoiding an impending shutdown.
Soon the money will run out
In the past few weeks, Yellen had repeatedly warned of serious consequences if the debt ceiling was not raised in good time. In earlier statements, she had announced that insolvency threatened as early as October if the Treasury Department had exhausted its payment reserves and extraordinary borrowing capacities.
The Congressional Independent Budget Office (CBO) said in July that the government would likely run out of money in October or November.