As the U.S. faces the possibility of defaulting on its debt, Treasury Secretary Janet Yellen emphasizes that such a scenario should be “unthinkable,” warning of the disastrous consequences it would have on the country and global economy.
Amidst a standoff between the White House and Congressional Republicans over the debt limit, Yellen urges lawmakers to raise the debt ceiling and avert a crisis.
The dire consequences of default
Defaulting on sovereign debt would wreak havoc on the economy and roil markets around the world. A default on Treasury bonds could throw the U.S. economy into a tailspin.
Moody’s Analytics projects that if the U.S. were to default, the gross domestic product would drop 4%, and more than 7 million workers would lose their jobs. Even a brief default would lead to the loss of 2 million jobs.
In such a scenario, U.S. bond ratings would be classified as “restricted default,” according to Fitch Ratings, and Treasuries would have a D rating until the U.S. could once again borrow.
The Brookings Institution noted a default could lead to $750 billion in higher federal borrowing costs over the next decade.
U.S. global position at risk
A default would also shake the U.S. position on the world stage. U.S. Director of National Intelligence Avril Haines told the Senate Intelligence Committee that Russia and China would take advantage of the country potentially defaulting on its debt.
Haines warned the two nations would attempt to highlight “the chaos within the United States, that we’re not capable of functioning as a democracy.”
In the event of a default, tens of billions of dollars in payments would be paused. The Bipartisan Policy Center estimates that in the first half of June, $50 billion in Social Security benefits, $20 billion in Medicaid provider payments, $12 billion in veterans’ benefits, $6 billion in federal salaries, and $1 billion in SNAP benefits are set to be dispersed.
Janet Yellen’s call to action
Yellen has been vocal in expressing her concerns about the potential for an “economic catastrophe” if the U.S. fails to raise its debt ceiling in the coming weeks. She has also warned that the U.S. could fail to meet its debt obligations sooner than expected – and it may run out of measures as early as June 1.
“There is no good alternative that will save us from catastrophe. I don’t want to get into ranking which bad alternative is better than others, but the only reasonable thing is to raise the debt ceiling and to avoid the dreadful consequences that will come,” Yellen told reporters.
She urged Congress to act quickly, noting that it has raised or suspended the debt limit almost 80 times since 1960. Yellen remains hopeful that differences can be bridged and the debt ceiling will be raised, with another meeting scheduled for next Friday.
The U.S. must address the debt ceiling issue to prevent a disastrous default with far-reaching consequences. As Treasury Secretary Yellen emphasizes, it is crucial for lawmakers to take action and raise the debt ceiling, ensuring the stability of the U.S. and global economy.
