Failure to increase debt limit would have catastrophic economic consequences

Washington: US Treasury Secretary Janet Yellen has issued a severe warning to US Congress. ‘If US Congress fails to increase or suspend the debt limit, US will default on national debt causing irreparable harm to the economy,’ Yellen said. In a letter to the US Congress, Yellen also reminded that the current debt limit expires on August 1. It is the second time in a month that the Treasury Secretary has warned about the national debt.

Two years ago, then US President Donald Trump had decided to suspend the debt ceiling. The debt limit suspension will expire on July 31. Unless a new decision is made by then, the Biden administration will not be able to obtain funding for further expenses and debt repayments. In addition, the administration has provided an additional $6 trillion in funding through various relief programs to boost the economy in the wake of the coronavirus pandemic. However, the economy has not recovered from the pandemic yet. Therefore, a significant upheaval in the economy is likely if a decision is not made on the debt ceiling.

Referring to this in her letter, Treasury Secretary Yellen indicated that the Treasury Department would be forced to take extraordinary measures. At the time, the US Treasury Secretary also mentioned the situation faced in 2011. ‘The debt limit expires on August 1. It could be a major challenge for MPs returning from the annual recess. The US administration risks a potential default on debt. The risk of debt default can have a serious impact on the economy. In 2011, this led to the US economy being downgraded in credit ratings,’ Yellen noted. According to the US Congressional budget office, cash from the US Treasury Department is likely to run out in October or November.

The US national debt reached $28 trillion in March. Combining other public and private debt, the US national debt is estimated to be $85 trillion. That’s more than four times the current GDP of the United States. If the government debt alone was to be considered, every citizen of the United States is estimated to carry a debt of $85,000. In a warning last month, Finance Minister Yellen said that if the US Congress fails to raise the debt limit, it could lead to serious and catastrophic economic consequences. Earlier, a political crisis in the United States over debt had forced the US administration to shutdown.

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