Yellen: US default could lead to recession and ‘break’ financial markets

US Treasury Secretary Janet Yellen warned Tuesday that a public debt default it would leave millions of people with no income, potentially triggering a recession that would destroy many jobs and businesses.

Yellen told a meeting of community bankers that the unprecedented financial and economic crisis would be compounded by potential disruptions to federal government operations, including air traffic control, law enforcement, border security and national defense. as well as telecommunication systems.

The financial crisis that would accompany default could multiply the severity of the recession, he said, adding: “It is highly conceivable that we will see a number of financial markets break down, with global panic triggering margin calls, runs and liquidations.”

The Secretary of the Treasury also demanded this Tuesday that Congress agree to reach an agreement with the Government chaired by Joe Biden on the debt ceiling to avoid a “catastrophe” for the first economy in the world.

“If Congress doesn’t address the debt limit there are no good options that the Treasury or the government can use to save us from a catastrophe.”Yellen said this morning in a speech at a meeting of the Community of Independent Bankers of America (ICBA).

And it would be, he added, a catastrophe.”economic and financial” that “would reverse” the economic recovery achieved in recent years and would even cause the United States to regress “even more”.

Biden is scheduled to meet this afternoon with the leaders of Congress to try to reach an agreement on the debt ceiling before traveling to Japan tomorrow to participate in the G7 summit, although the positions with the Republicans are very far apart and it does not seem possible that such an agreement can be reached.

In his speech this morning, Yellen said that this crisis is “completely avoidable” and recalled that since 1960 Congress has increased or suspended the debt limit eighty times, both with Democratic and Republican administrations.

“Congress should just do it again. Increasing or suspending the debt limit does not authorize the federal government to increase spending. It simply allows you to meet existing (spending) commitments”, he stressed Yellen.

The current debt ceiling, of US$ 31.4 trillion, was already reached on January 19. Therefore, currently, the Government is drawing on money in its reserves to pay off the debts it has contracted.

The Treasury Department estimates that those reserves will be depleted by June 1, although Yellen admitted this morning that it is “impossible to predict” the exact moment at which it will be impossible for the government to continue assuming payments.

In any case, as soon as that happens, USA it would automatically enter a suspension of payments, the first in its history.

every so often, USA it looks at the non-payment of the national debt because, unlike other countries, its Executive can only issue debt up to the limit established by Congress, which has the power to suspend that ceiling as it sees fit.

Republicans currently control the US House of Representatives and are trying to force Biden to negotiate cuts to social programs in exchange for suspending the debt ceiling.

With information from EFE and Reuters