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The Secretary of the Treasury, Janet Yellen, He said Tuesday that he thinks the economy would go into recession if Congress does not address the federal government’s borrowing limit, before an unprecedented default on US debt.
“I consider that October 18 is a deadline. It would be catastrophic not to pay the government bills, for us to be in a position where we don’t have the resources to pay the government bills, ”Yellen said during an interview in “Squawk Box” from CNBC.
President Joe biden he asked Congress on Monday to raise the debt limit this week and avoid even approaching an almost certain economic crisis.
Biden blamed the Republicans and the Senate Minority Leader, Mitch McConnell, R-Kentucky, for getting in the way of legislation that would raise the lending cap, using obstructionism.
“I also hope it causes a recession”, Yellen told CNBC on Tuesday.
The Secretary of the Treasury warned the Speaker of the House of Representatives for weeks Nancy pelosi and the Senate Majority Leader Chuck schumer, that the United States will no longer be able to pay its debts around October 18, forcing it to suspend the debt ceiling before that date or risk the first default in the history of the United States.
The Treasury Department is currently using so-called emergency extraordinary measures to pay American bills, since it hit the last debt ceiling in late July. The extraordinary measures allow the department to conserve cash and withdraw certain accounts, without issuing new bonds.
But those measures are temporary and are only expected to last until mid-October, according to Treasury estimates.
The consequences can be disastrous
While the US has never stopped paying its bills, economists say a default would cause widespread damage through an increase in interest rates, tarnishing faith in Washington’s ability to meet its future obligations to time and potentially delay Social Security checks for some 50 million older adults.
Members of the Army could also see their payment delayed as a result of a default.
Inaction could also tempt some countries to hold fewer Treasuries and weaken demand for the dollar, possibly giving China an advantage in its attempt to replace the dollar as the world’s preferred currency.
Lawmakers from both parties acknowledge that the debt ceiling must be raised or there is a risk of an economic recession. But the disagreement is on how to raise the debt limit, and each uses the issue as a political club.