Janet Yellen, US Treasury secretary, during a news conference on the Treasury Department in Washington, DC, US, on Tuesday, April 11, 2023.
Eric Lee | Bloomberg | Getty Images
WASHINGTON — Treasury Secretary Janet Yellen on Tuesday delivered her most dire warning yet in regards to the debt ceiling, urging Congress to boost it immediately so the federal government avoids running out of money by early June.
“A default would crack open the foundations upon which our economic system is built,” Yellen warned in prepared remarks. “It is rather conceivable that we would see quite a lot of financial markets break – with worldwide panic triggering margin calls, runs and fire sales.”
Yellen, speaking on the Independent Community Bankers of America Capital Summit, said the White House Council of Economic Advisers found that a default could lead on to an economic downturn as bad because the Great Recession, with 8 million Americans losing jobs and the stock market’s value falling by about 45%.
She also noted a Moody’s Analytics report which found similar numbers with greater than 7 million Americans out of labor and $10 trillion in household wealth evaporated. Yellen also warned that a debt ceiling breach could affect essential government services.
“If that sounds catastrophic – that is since it is,” Yellen said. “Now, this crisis is entirely preventable. The answer is easy.”
Yellen’s words got here hours before President Joe Biden is scheduled to fulfill with House Speaker Kevin McCarthy and other top congressional leaders to attempt to knock out a deal before Biden leaves for the Group of Seven summit in Japan. Staff from each side have been working each day for the reason that leaders met last week to try to return to a deal before June, when the federal government could run out of cash. The leaders left the previous meeting with little progress to point out.
Yellen reaffirmed the so-called X-date of June 1 in her remarks and pleaded with Congress to act.
“Our current best estimate underscores the urgency of this moment: it is crucial that Congress act as soon as possible.”
Lifting the debt ceiling is needed for the federal government to cover spending commitments already approved by Congress and the president and stop default. Doing so doesn’t authorize latest spending. But House Republicans have said they may not lift the limit if Biden and lawmakers don’t conform to future spending cuts.
The Treasury secretary said a default would “generate an economic and financial catastrophe” and wipe out economic gains Americans have made for the reason that coronavirus pandemic. Not doing so would result in “an unprecedented economic and financial storm” that will immediately stop government payments to 66 million Social Security beneficiaries, tens of millions of veterans and military families.
“A default could cause widespread suffering as Americans lose the income that they should get by,” Yellen said. “And the resulting income shock could lead on to a recession that destroys many American jobs and businesses.”
Yellen also noted the ways a default would disrupt on a regular basis life: air traffic controllers, law enforcement, border security, food safety, communications systems and national security are all in danger when the federal government stops paying federal employees and contractors.
“We’re already seeing the impacts of brinksmanship: investors have turn out to be more reluctant to carry government debt that matures in early June,” she said. “And the impasse has already increased the debt burden to American taxpayers.”
