Yellen Forewarns Disaster if Debt Limit is Breached

Full article by Stefani Reynolds found here.

Key points:

• Treasury Secretary Janet L. Yellen warns lawmakers of “catastrophic” consequences if Congress does not raise or suspend the U.S. debt limit in less than three weeks. She states that failure to act could lead to a self inflicted economic recession and a financial crisis.

• Yellen described the the situation at a Senate Banking Committee hearing where she testified alongside the Federal Reserve chairman, Jerome H. Powell.

• These warnings come as the stock market and crypto markets suffer further losses as investor sentiment turns negative over concerns of a potential government shut down, credit default, inflation, the end to quantitative easing, and the ongoing coronavirus pandemic.

• Congress struggled to plan how to resolve two immediate issues: how to fund the government past Thursday and how to raise the debt limit to continue borrow money to pay its bills. Senate Republicans blocked an emergency spending bill that would have funded the government through December and lifted the debt limit on Monday, but there have been no developments in the situation since then.

• Yellen warns that the effects of inaction would effect several points across the economy, where Social Security payments could be delayed, soldiers would see paychecks delayed, and interest rates on credit cards, car loans, and mortgages would rise.

• A default on U.S. payments would jeopardize the dollar’s status as the international reserve currency, weakening confidence in U.S. financial stability and spending power.

• Yellen noted that deficits have been run under both Democratic and Republican administrations, striking down claims that raising the debt limit is a partisan issue. The Treasury Secretary stated that “it is very important to recognize that raising the debt is about paying bills that Congress has incurred in the past, it’s a shared responsibility.”