US Treasury Secretary Janet Yellen has warned of serious consequences if the government fails to raise the US debt ceiling, BBC writes.
If no deal is reached to increase the amount of federal government borrowing, it could face bankruptcy as early as June. This means that the government will not be able to pay salaries and make insurance and other payments. Yellen said: “That’s the job of Congress. If they can’t do it, we’re going to end up in a financial and economic disaster of our own making.”
In an interview with ABC News on Sunday, the 7th of May, Yellen said that debt ceiling negotiations should not take place using US citizens as hostages. However, time is running out. On Tuesday, the 9th of May, US President Joe Biden will meet with Republican leaders to ask for support for increasing borrowing. Congress mostly associates the approval of the increase in the amount of debt with budget restrictions and spending cuts.
The House of Representatives approved the borrowing increase in April, and the bill also included huge spending cuts over the next decade. Biden wants to get the debt ceiling raised without additional provisions, and has indicated that talks on reducing spending will take place after the current crisis is resolved. Yellen indicated that
the failure to find a compromise between Democrats and Republicans could lead to a constitutional crisis.
The Biden administration is currently considering whether the US Constitution allows the president to decide to increase the debt without the consent of Congress. However, this week the main focus will be on efforts to prevent such a scenario. “We should not get to the point where we need to consider whether the president can go on issuing debt. This would be a constitutional crisis,” said the US Treasury Secretary.
Since 1960, the US debt ceiling has been raised or revised 78 times, and the negotiations have often been bitter. Until now, the fear of default has always led to a compromise. If the US were to go into default, it would have far-reaching and long-lasting consequences for the world economy. In a letter to Congress, Yellen stated that delaying the decision will also have a negative impact.
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