US debt default will cause ‘economic disaster’, treasury secretary warns

United States Treasury has warned that the US government will be unlikely to meet payment obligations by early June if the debt ceiling is not raised.

The date is earlier than the Treasury estimated in January, indicating that the United States financial situation is more precarious than previously thought.

In a letter to Speaker of the House Kevin McCarthy, published on Monday, US Treasury Secretary Janet Yellen asked Congress to increase the government’s debt ceiling before this date or to suspend its implementation in order to prevent economic turmoil.

After reaching the borrowing cap of $31.4 trillion on January 19, Yellen informed Congress that the Treasury would use cash receipts and extraordinary cash management measures to continue making payments on debt, federal benefits, and other expenditures at least through June 5.

Previously, economists had predicted Washington’s debt would increase to the set limit by the end of early August and the collection of less-than-expected tax revenues will speed the process.

Experts believe the US could default on its obligations if the debt ceiling is not raised by the summer, triggering an economic downturn that could result in a recession, create an unemployment crisis, and damage the country’s reputation as a safe haven for investors.

The economic outlook is also clouded by a deepening rivalry between Biden and Republican lawmakers, who are demanding drastic spending cuts in exchange for more government borrowing power.

For the past two months, the White House has refused to talk to McCarthy and has demanded that the Republican-controlled Congress unconditionally approve the increase in the debt ceiling.

The president accused Republicans of holding the economy hostage to politically motivated demands and said he would discuss spending issues only in the context of the budget, not in relation to the debt ceiling.

Next week, the Republican plan to increase the federal government’s debt ceiling and reduce government spending will go to Congress.

Yellen had previously warned that the inability of Congress to raise the debt ceiling for the United States government and the ensuing bankruptcy would result in an “economic disaster”.

She claimed that Congress has a “fundamental responsibility” for raising or lowering the $31.4 trillion debt ceiling set by the US government and that the government’s bankruptcy poses a threat to the country’s economic progress since the Corona pandemic.

In 2011, a similar struggle over the debt ceiling brought the country to the brink of default, resulting in a downgrade of the country’s main credit rating.

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