"Sharp Economic Downturn" Ahead of Biden-McCarthy Meeting... Yellen Issues Another Default Warning

"If the debt ceiling is not raised, a steep economic downturn will ensue."

Ahead of the meeting between U.S. President Joe Biden and House Speaker Kevin McCarthy regarding the debt ceiling, U.S. Treasury Secretary Janet Yellen once again warned of the possibility of a default. Analysts say that if an unprecedented national default occurs, it would inevitably lead to an 'economic and financial disaster.'

On the 7th (local time), Secretary Yellen appeared on ABC's "This Week" and said, "We have been taking extraordinary measures for months (due to reaching the debt ceiling), but even those are running out," adding, "If Congress does not raise the debt ceiling, there will come a day in early June when we cannot pay the bills." The U.S. has exhausted its $31.4 trillion debt ceiling as of January and is currently buying time through extraordinary measures, but even those are reaching their limits.

Secretary Yellen stated, "If a default occurs, it would be an unprecedented event in U.S. history," and "Everyone agrees that financial and economic turmoil would follow." She expressed concern, saying, "U.S. Treasury securities are the safest foundational bonds underpinning the international financial system," and "If the U.S. fails to repay its debt, it would cast doubt on our creditworthiness."

She also predicted, "If Congress does not take action even as the (default) date draws very near, the financial markets are likely to show consequences." She specifically referenced 2011, when congressional deadlock over raising the debt ceiling peaked, emphasizing the market turmoil at that time by noting, "The stock market plunged and the credit rating was downgraded." The White House Council of Economic Advisers released an economic damage scenario earlier this month, estimating that if the default prolongs, the stock market could plunge 45% and up to 8.3 million jobs could be lost. The Brookings Institution think tank expressed concerns that a default could shake the U.S. dollar's status as the global reserve currency.

[Image source=AP Yonhap News]

Secretary Yellen's warning came ahead of a scheduled meeting on the 9th between President Biden and the leadership of both parties in the House and Senate to discuss the debt ceiling. The remarks were aimed at pressuring the Republican Party. The Republicans, who hold the majority in the House, are currently opposing the Biden administration's request to raise the debt ceiling, making large-scale government spending cuts a precondition. Earlier, the Republican-led debt ceiling bill passed in the House last month included raising the national debt limit by $1.5 trillion but sought to align the 2024 federal budget with 2022 levels by eliminating climate change funds and other measures. In contrast, the White House and Democrats insist that the debt ceiling is not negotiable and demand an unconditional increase.

Regarding the meeting on the 9th, Secretary Yellen said, "I don't want to get ahead of things," but added, "Negotiations should not proceed with a gun to the head of the American people." She criticized, "It is important that Congress fulfills its responsibilities," and said, "Threatening an economic disaster for American households in the global financial system is unacceptable." On the same day, Secretary Yellen also emphasized that since 1960, the U.S. debt ceiling has been raised a total of 78 times, and during the Trump administration, the Republicans supported three bipartisan increases.

Accordingly, some speculate that the Biden administration might take emergency measures to raise the debt ceiling without congressional approval based on the 14th Amendment. Regarding this, Secretary Yellen said, "There is no way to protect the U.S. financial system and economy other than Congress doing its job," adding, "We should not reach a point where the President has to consider whether to continue issuing debt. That would be a constitutional crisis." She added, "If Congress fails to fulfill its responsibilities, then there are no good options."

Additionally, when asked about the crisis in the U.S. banking sector, including Silicon Valley Bank (SVB), Secretary Yellen responded, "The U.S. banking system has strong capital levels and liquidity." She emphasized, "We have taken decisive action to prevent contagion from difficulties at some banks and are prepared to act again if necessary," and said, "Although some bank stocks are under downward pressure, I am confident that the banking system overall remains strong."

Meanwhile, on the same day, House Majority Leader Hakeem Jeffries appeared on NBC and said, "We must avoid default," adding that the meeting on the 9th would help find a path forward for the United States.

This content was produced with the assistance of AI translation services.