The US will fall into a recession if Congress does not lift the debt ceiling

The US economy will fall into recession if Congress does not resolve the debt ceiling before an unprecedented default hits, Treasury Secretary Janet Yellen warned.

US Treasury Secretary Janet Yellen. Photo: AFP

“I am referring to the next 10/18 due date. For us, it would be a tragedy to not be able to pay the government’s debts, in a situation where we lack the resources to pay. government debt,” US Treasury Secretary Janet Yellen said in an interview with CNBC on October 5.

Earlier, US President Joe Biden on October 4 called on Congress to loosen the debt ceiling this week to avoid an economic crisis approaching. Mr. Biden criticized Republicans and Senate Minority Leader Mitch McConnell for thwarting a debt relief bill with the Filibuster trick – a tactic used by congressional minorities to oppose a bill that has received majority consent and debate indefinitely.

“I think that could also cause a recession,” Minister Janet Yellen speak.

Over the past several weeks, the US Treasury Department has warned “iron lady” Nancy Pelosi, Speaker of the House and Senate Majority Leader Chuck Schumer that the US may not fulfill its debt repayment commitments by October 18th. US lawmakers must relax or postpone the application of the debt ceiling before the October 18 due date or face an unprecedented default.

The US Treasury Department is using so-called “irregular emergency measures” such as holding more cash and withdrawing money from fixed accounts without issuing new bonds. But in their assessment, these measures are temporary and only last until mid-October.

Although the US has never “broken down” on debt payments, economists say a default can cause huge losses, causing interest rates to skyrocket, damaging confidence in the ability to meet obligations. Washington’s debt repayments on time and further risk stalling the implementation of the social bond program for about 50 million seniors (over 55 years old). In addition, if the US government defaults, payments to those serving in the armed forces will also be delayed.

As a consequence, some countries will reduce their holdings of US Treasuries as well as the demand for US dollars. This could pave the way for China to take the upper hand, taking the yuan to surpass the greenback to become the world’s favorite currency.

“These long-standing U.S. Treasury-issued bonds are considered the safest assets in the world,” said Secretary Yellen. “This is also the basis for holding US dollars. So the question is that if we fail to pay the due debt, will it really be a tragic outcome,” said Ms. Yellen.

Lawmakers from both the Republican and Democratic parties recognize the need to raise the current US debt ceiling, or there will be an economic shock. However, what both sides showed as of the morning of October 5 (hours) showed that the possibility of coming to an agreement on the debt ceiling was still far away.

Republicans have long been concerned about the lavish spending plans that the Biden administration has put forward during the epidemic. They argue that President Biden, Speaker of the House Pelosi and Senate Majority Leader Schumer should “lonely” solve the problem by postponing the trillion-dollar social security policy and the climate change act. climate change.

In the petition sent to President Biden on October 4, Senate Minority Leader Mitch McConnell reiterated that: “Since mid-July, Republicans have clearly warned that Democrats need to tackle the debt ceiling on their own.” “Bipartisan is not the ‘electrical switch’ that Ms. Pelosi and Mr. Schumer like to turn on to borrow money and turn off to spend,” McConnell said.

“For the past two and a half months, we’ve been warning, since your party wants to run itself, it has to deal with the debt ceiling on its own,” the minority leader said. the Senate number emphasized.