Political brinkmanship over raising the U.S. debt ceiling risks “serious economic costs” even without the “catastrophe” of a default, Treasury Secretary Janet Yellen warned Thursday at Group of Seven finance talks in Japan.
Hours earlier, former president Donald Trump urged Republican legislators to trigger the first-ever U.S. debt default by refusing to lift the limit if Democrats don’t agree to spending cuts.
President Biden has threatened to call off his upcoming trip to Asia, including in-person attendance at next weekend’s G-7 summit, if the deepening standoff isn’t resolved soon.
“In my assessment — and that of economists across the board — a default on U.S. obligations would produce an economic and financial catastrophe,” Yellen said in a speech.
“Short of a default, brinkmanship over the debt limit can also impose serious economic costs,” Yellen said as a three-day meeting of finance ministers and central bank chiefs began in the port city of Niigata ahead of the G-7 summit later this month in Hiroshima.
The lifting of the so-called debt ceiling — a limit on government borrowing to pay for bills already incurred — is often routine.
But Republicans, who won control of the House of Representatives in 2022, have vowed to only raise the limit from its current $31.4 trillion maximum if spending curbs are enacted.
Last week, Yellen warned that the U.S. could run out of money to meet its financial obligations as early as June 1.
After reviewing recent federal tax receipts, our best estimate is that we will be unable to continue to satisfy all of the government’s obligations by early June, and potentially as early as June 1, if Congress does not raise or suspend the debt limit before that time,” Yellen wrote in a letter to lawmakers.
On Thursday, she recalled a similar impasse in 2011 that resulted in the United States losing its coveted AAA debt rating.
A high-stakes meeting with Mr. Biden and key lawmakers from both parties on Tuesday yielded no breakthrough, but the group agreed to keep trying to avert a default.
But on Wednesday, Trump — a frontrunner for the 2024 Republican presidential nomination — urged otherwise during a live town hall broadcast on CNN.
“Republicans out there, congressmen, senators — if they don’t give you massive cuts, you’re gonna have to do a default,” he said.
When asked about Trump’s comments, Yellen said, “America should never default” because “it would be tremendously economically and financially damaging.”
“The notion of defaulting on our debt is something that would so badly undermine the U.S. and global economy that I think it should be regarded by everyone as unthinkable,” she said, addling that she’s “very hopeful that the differences can be bridged and the debt ceiling will be raised.”