US Treasury secretary says Americans face financial ‘catastrophe’

People ride escalator at Saks Fifth Avenue in New York City, US, December 4, 2022. (Reuters photo)

US Treasury Secretary Janet Yellen has warned that the United States is facing a catastrophic debt crisis if Congress fails to raise the statutory debt ceiling to fend off a default.

“It would be devastating,” Yellen said to Axios in an interview from Johannesburg, South Africa, on Saturday. “It’s a catastrophe.”

“Of course, it makes me nervous,” she added

She said the United States could default on its debt by summer, which would lead to a global financial crisis.

Yellen said that “we’ll have a financial crisis and I believe we would have a recession in the United States.”

“Spending would have to decline to match the tax revenues,” Yellen said, which would deprive the US government of the ability to support the economy with stimulus.

She added that furthermore, “psychological consequences” like people fearing to spend money could then “further impact spending and deepen a recession.”

The top US financial official noted that a full-scale American debt default would also impact the global economy.

“Americans would face higher borrowing costs, and it would cause a good deal of turmoil globally as well,” Yellen said.

The US Treasury has taken "extraordinary measures" to fend off the default as the country reached its $31.4 trillion debt ceiling. The Treasury has warned that the “extraordinary measures” would only help for a limited time.

Yellen has stated that the actual date on which the Treasury would no longer be able to use these measures is "quite uncertain," and could come in June.

She added that if Congress fails to raise the debt limit, the US could see a downgrading of its debt "at minimum.”

“The president and the leadership of Congress are responsible to find a way to get the debt ceiling raised,” she told Axios on Saturday.

US default could ‘cause a global financial crisis’: Treasury secretary

The debt limit issue has set the table for a showdown between the White House, Democrats in the Senate and a Republican-controlled House.

Far-right Republicans want Democratic President Joe Biden to agree to slash government spending. They argue that radical cuts are needed to reduce borrowing.

Democrats want to quickly pass debt limit legislation, but House Republicans are adamant that they will not cooperate without major spending cuts.