WASHINGTON: US Treasury Secretary Janet Yellen on Friday urged members of the US House of Representatives to raise the federal debt limit unconditionally, warning that defaulting on the US debt would lead to an “economic and financial collapse”.
In budget testimony before the Republican-controlled House Ways and Means Committee, Yellen said failure to raise the $31.4 trillion borrowing limit would threaten the economic progress the US has made since the COVID-19 pandemic.
Yellen said, “In my assessment – and that of economists across the board – defaulting on our debt would trigger an economic and financial disaster.” “I urge all members of Congress to come together to address the debt ceiling – without preemption and without waiting until the last minute.”
Yellen says US default could cause global financial crisis
Asked about the possibility of prioritizing payments to cover US debt payments ahead of available cash resources, as some Republicans have suggested, Yellen said it is “not a solution to the debt ceiling issue. “
“The priority is not to pay all of the government’s bills when they come due. That’s something we’ve never done since 1789. And that really is default by any other name.”
He said the only option to avoid a steep rise in interest rates after a default is for the US to commit to paying its bills on time.
“If we don’t do this and think there are some shortcuts around this that will avoid economic chaos, we are kidding ourselves because not paying the government’s bills will lead to economic and financial collapse,” she said.
Some Republicans have demanded spending concessions from US President Joe Biden in exchange for raising the debt ceiling. Yellen declined to negotiate raising the debt ceiling, arguing that it was about making good on past spending decisions by Congress.