Default on debt would trigger an ‘economic catastrophe’: US Treasury secretary

US Treasury Secretary Janet Yellen has sounded the alarm that a failure by Congress to raise the government’s debt ceiling would eventually trigger an “economic catastrophe.”

“A default on our debt would produce an economic and financial catastrophe,” Yellen said on Tuesday at the Sacramento Metropolitan Chamber of Commerce members’ summit in Washington.

She added, “A default would raise the cost of borrowing into perpetuity. Future investments would become substantially more costly.”

Yellen warned that failure by Congress to raise the government’s debt ceiling and the resulting default on US debt would result in job losses and higher interest rates for years to come.

If Congress fails to do so, the government will likely run out of money to pay its bills, it will most likely be unable to issue payments to military families and seniors who rely on Social Security and US businesses will face deteriorating credit markets, she also warned, further adding that household payments on mortgages, auto loans and credit cards would all go up, as well.

Yellen insisted that it was the “basic responsibility” of Congress to increase or suspend the $31.4 trillion borrowing cap set for the government without delay. “Congress must vote to raise or suspend the debt limit. It should do so without conditions. And it should not wait until the last minute.”

After the January due date had expired, the US Treasury Secretary told lawmakers in February that the government will likely run out of money in June.

The Republican-controlled House of Representatives is scheduled to vote in the coming weeks on raising the US government’s debt ceiling by $1.5 trillion.

However, Speaker of the House Kevin McCarthy (R-Calif.), suggested last week that the Republican plan would be to link their approval of an increase of $1.5 trillion to a decrease of $4.5 trillion in public spending.

Treasury says the two issues should not be linked, and the Democratic-controlled Senate is likely to reject the GOP plan amid a standoff between Democrats and Republicans, who have refused to support raising or suspending the debt ceiling.

“These budget resolutions are not easy,”  House Budget Committee Chairman Jodey Arrington (R-Texas) said in an interview. “They’re complicated by the fact that you have a diverse group of members, it touches virtually every policy in every program in the federal government, and we are so deep in the debt hole.”