US Treasury Secretary Janet Yellen urged Congress on Thursday to raise its debt ceiling, warning that a US default would produce an “economic and financial catastrophe” that would trigger a global economic downturn and risk undermining the country’s ability to provide global leadership.
“A default would threaten the gains that we’ve worked so hard to make over the past few years in our pandemic recovery. And it would spark a global downturn that would set us back much further,” Yellen said Thursday in Niigata, Japan, where she is attending a meeting of G7 finance ministers and central bankers.
“It would also risk undermining US global economic leadership and raise questions about our ability to defend our national security interests,” she added.
Yellen said Congress was no stranger to raising or suspending the debt limit — having done so almost 80 times since 1960 — and urged it to act quickly to do so once again.
She spoke a few hours after former US President Donald Trump, the frontrunner for the GOP presidential nomination in 2024, took questions from voters at a CNN town hall. He suggested Republicans should refuse to raise the debt limit if the White House does not agree to “massive” spending cuts.
“If they don’t give you massive cuts, you’re going to have to do a default, and I don’t believe they’re going to do a default because I think the Democrats will absolutely cave,” he said in response to a question.
As leaders in Washington fail to make progress on a debt ceiling deal, Yellen has forecast that the United States could run out of cash and extraordinary measures to pay its bills as soon as early June.
To prompt action, Yellen has been stepping up warnings on the matter in recent days, even personally calling CEOs to discuss the consequences of brinkmanship around the debt ceiling, a source has told CNN.
In a report published last week, White House economists said a protracted default would wipe out more than 8 million jobs and cut the value of the stock market in half. The report estimated the impact under three scenarios: brinksmanship, a short default and a protracted default.
A White House spokesperson said the protracted default scenario envisions a three-month long impasse.
Even a brinksmanship scenario, where a default is avoided, would wipe out 200,000 jobs and knock 0.3 percentage points off annual GDP, according to estimates from Washington.
A US default would also have far-reaching consequences. Such an event could affect the value of the US dollar, as well as hurt demand for imports from other countries to the world’s largest economy.