Treasury secretary: Loan default could set off ‘historic financial crisis’
treasurer Janet Yellen renewed his call Congress to raise or suspend the country’s debt before October, warned that failure to do so could lead to an unprecedented financial crisis in the US
“America has always paid its bills on time,” Yellen wrote Sunday in the Wall Street Journal op-ed. “But the overwhelming consensus among economists and Treasury officials on both sides is that failing to raise the debt limit will result in widespread economic catastrophe.”
What is the loan limit?
The Treasury Department began implementing so-called extraordinary measures to keep the government running after a debt limit of about $22 trillion was restored in August – about $6 trillion less than the actual level. Yellen has told Congress that the federal government will run out of cash to pay its bills in October.
The fight to raise the government’s borrowing limit carries huge risks to the broader economy: With debt totaling $28.5 trillion, the government will be forced to reduce federal aid programs unless the cap is suspended or removed. Is.
But lawmakers are at a standstill over debt limits: Democrats are pressing Republicans to support an effort to raise or suspend the ceiling, insisting they don’t put it in a $3.5 trillion spending bill Will keep But Senate Minority Leader Mitch McConnell rejected Yellen’s appeal to raise the ceiling, arguing that Democrats have the ability to go it alone.
McConnell tweeted last week, “Let’s be clear: With a Democratic President, a Democratic House and a Democratic Senate, the Democrats have every tool they need to raise the debt limit. It’s their sole responsibility.” “Republicans will not facilitate another reckless, partisan tax and spending spree.”
President Biden has countered that Democrats joined with three-time GOP lawmakers under the Trump administration to suspend limits, and that the growing deficit is due to Republican spending. He argued that the comprehensive tax and spending package Democrats are still crafting would be fully paid for.
“Let me remind you, these are the same people who just four years ago passed Trump’s tax cuts,” Biden told the White House on Thursday. “It just increases the federal deficit.”
The House is set to vote this week on a measure to suspend debt limits and a separate short-term measure to extend government funding beyond the end of September 30.
The game of brinkmanship on Capitol Hill has worried Wall Street analysts and traders along with the Dow Jones Industrial Average. rolling 586 points, or 1.7%, on Monday. The S&P 500 Index dropped 1.69% and the Nasdaq Composite Index dropped 1.99%.
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If the US fails to raise or suspend the debt limit, it will eventually have to temporarily default on some of its obligations, which could have serious and negative economic effects. Interest rates are likely to rise, and demand for treasuries will fall; Even the risk of default can lead to an increase in the cost of borrowing.
Yellen wrote, “America never made a mistake. Not once.” “Doing so would likely create a historic financial crisis that would compound the damage of a continuing public health emergency.