According to Janet Yellen, a government debt default would have a disastrous impact on the national economy. The US Treasury Secretary warned of mass unemployment, economic woes, and endless interest rate hikes.
The catastrophic consequences of a default would prevent the US from meeting its debt obligations, she stressed. Moreover, recent negotiations over the debt ceiling increase stalled. "Since 1789, the United States has paid all of our bills on time, and it should stay that way," Yellen said, pointing to the urgent need to address this issue.
Yellen assumed that a debt default would result in the government failing to make military and social security payments. Furthermore, it could cause mass layoffs of public officials, while households would not be able to pay off their car loans and mortgages. If the current situation worsens, the US credit market could collapse, thus leading to "an economic and financial disaster."
Against this background, interest rates could rise "into perpetuity." "Congress must vote to raise or suspend the debt limit and it should do so without conditions, and it should not wait until the last minute," the secretary noted.
Earlier, US House of Representatives Speaker Kevin McCarthy proposed a bill that would pair $4.5 trillion in spending cuts with a $1.5 trillion increase in the federal debt limit. According to experts, if policymakers do not reach a settlement, the United States will run a higher risk of defaulting on its debt this summer.
