Default would be ‘catastrophe’ for US – Treasury

A default by the US on its sovereign debt would be disastrous for the economy and would undermine the country’s ability to provide international leadership, Treasury Secretary Janet Yellen has warned.

Speaking at a press conference ahead of the G7 gathering in Japan on Thursday, Yellen cautioned that a default by Washington on its $31.4 trillion debt would trigger a global economic downturn.

“[It] would also risk undermining US global economic leadership and raise questions about our ability to defend our national security interests,” the official told reporters. “A default is frankly unthinkable. America should never default. It would rank as a catastrophe.”

Yellen has voiced alarm over a potential default since January, when the US hit its debt ceiling. The Treasury Department has since been using special accounting measures to make cash available. Yellen told Congress those actions could run out as soon as June 1, putting payments to US bond investors, benefits recipients, federal contractors, and others in jeopardy.

A meeting this week between President Joe Biden and Republican lawmakers in Washington failed to yield progress. Biden and congressional Republicans are at an impasse over raising the $31.4 trillion borrowing limit, with GOP leaders demanding government spending cuts before they approve a higher ceiling.

Biden has insisted on a “clean” increase, arguing that the two issues should not be linked. Another meeting between the president and congressional leaders is set for Friday.

Former US President Donald Trump, the frontrunner for the GOP nomination in the 2024 election, suggested on Wednesday that Republicans should refuse to raise the debt limit if the White House does not agree to “massive” spending cuts.

In a report published last week, White House economists warned that a protracted US default would wipe out more than 8 million jobs and cut the value of the stock market in half.

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