In testimony to a Senate Appropriations subcommittee, Yellen stressed that defaulting on US debt obligations would be "unthinkable" and "would have absolutely catastrophic economic consequences." She also added that the United States may face a debt default and a new financial crisis as soon as the August recess if lawmakers fail to suspend or raise the federal borrowing limit.
Currently, the US debt ceiling is frozen until July 31, 2021. According to Yellen, if there are problems with its rise, the US Treasury Department will have to take emergency measures to avoid a default. Failure to raise the debt limit will intensify the financial crisis, putting at risk the jobs and savings of Americans, the head of the US Treasury Department pointed out. Besides, the robust recovery from the coronavirus crisis may also slow down.
In the current situation, Janet Yellen considers it appropriate to take the necessary measures to raise the debt ceiling. She turned to the US Congress with this question. "I would plead with Congress to simply protect the full faith and credit of the United States by acting to raise or suspend the debt limit as soon as possible. We can’t tolerate any chance of defaulting on the government debt, and there is a lot of uncertainty. It’s possible that we could reach that point while Congress is out in August, and I would really urge prompt action on raising the limit or suspending it," Yellen said.
Notably, attempts to support the global economy were made last year. This led to an unprecedented reduction in interest rates by central banks and an increase in government spending by a number of states. As a result, in 2020, the global debt soared by $24 trillion to $281 trillion. According to the Institute of International Finance (IIF), this is 355% of global GDP.
