Sarah Travers
In a stern warning to Congress, US Treasury Secretary Janet Yellen emphasized the potential dire consequences of a US default, urging lawmakers to raise the debt ceiling promptly.
Yellen expressed concern that a failure to take action would not only plunge the United States into an economic crisis but also undermine the nation’s leadership position on the global stage.
Impending Global Economic Downturn
Yellen, who has been vocal about the risks associated with a potential default, reiterated that a failure to raise the debt ceiling would lead to a global economic downturn.
The Treasury Secretary cautioned that the gains achieved in the nation’s post-pandemic recovery could be jeopardized, putting the livelihoods of millions of Americans at risk.
Trump’s Call for Spending Cuts
Former President Donald Trump added fuel to the debate by suggesting that Republicans should only support raising the debt limit if accompanied by “massive” spending cuts.
While Trump’s proposal received mixed responses, Yellen stressed that such an approach could exacerbate the situation, further destabilizing the economy and impeding its recovery.
June Deadline Looms
Highlighting the urgency of the matter, Yellen forecasted that the United States could exhaust its cash reserves as early as June if no action is taken.
This pressing deadline underscores the critical need for bipartisan cooperation and immediate resolution to prevent catastrophic consequences.
Devastating Economic Fallout
According to White House economists, a prolonged default would result in the loss of a staggering 8 million jobs and a significant 50% decrease in the value of the stock market.
Even if the United States manages to avoid default through brinksmanship, there would still be a loss of 200,000 jobs and a 0.3% reduction in the annual GDP. These figures highlight the far-reaching impact that a US default would have on the nation’s economy.
Global Ramifications
The repercussions of a US default would extend beyond the nation’s borders. The value of the US dollar would be impacted, potentially leading to a decrease in demand for imports from other countries. The global economic interconnectedness means that countries around the world would feel the effects of such a catastrophic event, further amplifying the urgency for a resolution.
Yellen’s G7 Priorities
Amid the urgency to address the debt ceiling issue, Secretary Yellen outlined three core priorities for the G7. These priorities include combatting inflation, supporting Ukraine’s defense against Russia, and enhancing economic resiliency and security. Yellen stressed the need for international collaboration and cohesive action to address these pressing concerns.
As the United States grapples with the imminent threat of default, Janet Yellen’s call for swift action carries significant weight. The potential consequences of a US default are severe, ranging from job losses to a decrease in stock market value and reduced global economic demand. It is imperative that Congress acts urgently to raise the debt ceiling and avert the potential global economic downturn, securing the nation’s economic recovery and maintaining its leadership role in the world.
