Unlike most other developed countries, the U.S. puts a hard
limit on how much it can borrow. Because the government spends
more than it takes in, lawmakers must periodically raise the
debt ceiling.
Kevin McCarthy, leader of the Republican-controlled House of
Representatives, last week floated a plan that would twin $4.5
trillion in spending cuts with a $1.5 trillion increase in the
debt cap, calling it the basis for negotations in coming weeks.
The White House insists the two issues should not be linked,
and the Democratic-controlled Senate is likely to reject the
proposal.
Financial markets are growing increasingly concerned about
the standoff, sending the cost of insuring exposure to U.S. debt
to its highest level in a decade, with financial analysts
warning about the increasing risk of default.
(Reporting by Andrea Shalal; Editing by Sonali Paul)
By Andrea Shalal
WASHINGTON, April 25 (Reuters) - U.S. Treasury Secretary
Janet Yellen on Tuesday warned that failure by Congress to raise
the government's debt ceiling - and the resulting default -
would trigger an "economic catastrophe" that would send interest
rates higher for years to come.
Yellen, in remarks prepared for a Washington event with
business executives from California, said a default on U.S. debt
would result in job losses, while driving household payments on
mortgages, auto loans and credit cards higher.
She said it was a "basic responsibility" of Congress to
increase or suspend the $31.4 trillion borrowing cap, warning
that a default would threaten the economic progress that the
United States has made since the COVID-19 pandemic.
"A default on our debt would produce an economic and
financial catastrophe," Yellen told Sacramento Metropolitan
Chamber of Commerce members. "A default would raise the cost of
borrowing into perpetuity. Future investments would become
substantially more costly."
If the debt ceiling is not raised, U.S. businesses will face
deteriorating credit markets, and the government will likely be
unable to issue payments to military families and seniors who
rely on Social Security, she said.
"Congress must vote to raise or suspend the debt limit. It
should do so without conditions. And it should not wait until
the last minute."
Yellen told lawmakers in January the government could pay
its bills only through early June without increasing the limit,
which the government hit in January.
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