The head of the US Treasury allowed a global financial crisis with a default in the country

The world could begin a global financial crisis if the United States defaults on foreign debt, US Treasury Secretary Janet Yellen said in an interview with CNN.

According to Yellen, the crisis could be the inability to make scheduled payments, “regardless of whether we are talking about bondholders or recipients of social security,” which will lead to a recession in the US economy. In addition, a downgrade of a country’s debt if the government is unable to pay its bills would undermine the dollar’s status as a reserve currency.

Earlier, on January 19, Yellen told Congress that the US government had reached its national debt limit and was no longer able to raise additional borrowing. The last time Congress raised the national debt ceiling was in December 2021 by $2.5 trillion to $31.381 trillion. By January 17, its total amount exceeded $31.4 trillion. However, this does not violate the limit, since some obligations are not taken into account when compared with it, the US Treasury explained.

When the Treasury lost the ability to build up national debt, Yellen told Congress that the department was forced to resort to emergency measures to prevent a default. In particular, we are talking about “maneuvers in the field of accounting”, including in relation to the non-market part of the debt. They allow you to temporarily not increase the amount of public debt and remain within the established limit.

At the same time, “emergency measures” allow us to gain time, but do not solve the problem, noted the Committee on a Responsible Federal Budget. As soon as they are exhausted, the US Treasury will lose the ability to issue new government bonds and will be forced to rely only on cash balances (just under $ 400 billion as of January 17) of tax revenues of the budget, the committee emphasized. According to Yellen, this could happen as early as June.