Breaking News
Get Actionable Insights with InvestingPro+: Start 7 Day FREE Trial Register here
Investing Pro 0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

U.S. default would cause 'irreparable' harm, Yellen warns again

EconomySep 30, 2021 05:06PM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
© Reuters. Treasury Secretary Janet Yellen attends the House Financial Services Committee hearing in Washington, U.S., September 30, 2021. Al Drago/Pool via REUTERS

(Reuters) -Treasury Secretary Janet Yellen on Thursday agreed that any default on U.S. debt would cause irreparable harm as well as an ensuing financial crisis and recession.

Yellen, asked by a member of the House Financial Services Committee if the damage done by failure to meet the federal government's debt obligations would be "irreparable," answered: "Yes."

Her remarks were the latest in a series of dire warnings Yellen has issued as Congress remains deadlocked over the matter of lifting or suspending the debt limit amid wrangling over the legislative agenda of the Democratic majority and Biden administration.

Yellen has said the government will run out of cash around Oct. 18 unless Congress raises the limit on the federal debt, currently capped at $28.4 trillion. After that date, the Treasury would be "simply in an impossible situation," Yellen said during an appearance before the committee on Thursday. "We won't be able to pay all of the government's bills."

The debt ceiling came back into effect in August after a two-year suspension, and the Treasury Department has been employing "extraordinary measures" to fund the government since. Yellen earlier this week told lawmakers those measures will be exhausted around the middle of October, earlier than most analysts had expected, after which the government will have insufficient funds to meet all of its obligations, ranging from Social Security payments to the principal and interest due on Treasury bills, notes and bonds.

Failure to meet those obligations would mark a first-ever U.S. default, which Yellen has repeatedly said would be "a catastrophe."

"We're likely to end up with a financial crisis, certainly a recession," Yellen told the House committee on Thursday. It would also have "longer-lasting consequences of higher interest rates for everyone who borrows."

That's because the U.S. credit rating would certainly be slashed, and international creditors who have long owned Treasury debt on the basis of it being backed by "the full faith and credit" of the U.S. government would no longer view those securities as "risk free." That would make it more expensive for the federal government - and everyone else - to borrow.

Federal Reserve Chair Jerome Powell said the U.S. central bank's ability to contain the fallout of such an event is limited.

"No one assume that we can really do much," Powell told lawmakers on Thursday. "No one should assume the Federal Reserve or anyone else can shield the American people from the consequences of that."

U.S. default would cause 'irreparable' harm, Yellen warns again
 

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (5)
elias skaff
elias skaff Sep 30, 2021 11:03PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
how on earth USA reached a point were they ran out of money?
DrFunkenstein hayson
DrFunkenstein hayson Sep 30, 2021 9:12PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
the only thing causing "irreparable "harm is the federal reserve and govt
Bill Pulak
Bill Pulak Sep 30, 2021 5:19PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Both parties are at fault but the Democrats are totally out of control right now! This isn't monopoly after dinner!! and the reckless spending will destroy our future and give almost no chance for the kids of today to have the same ability to achieve success as past generations as they will literally o be taxed into the ground! Both parties need to be wiped clean and a reset of lawmakers is needed. Maybe if 90% of the congress and senate wasn't 105 yrs old (sarcasm sorta)  and we had some people who have kids and a vested interest to help those kids,  decisions might be little more responsible?
Roger Miller
Roger Miller Sep 30, 2021 2:01PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
I told my credit card company the same thing...since I'm maxed out increase my credit limit or cause irreparable harm to my credit rating.  They don't seem to agree.
Forex Harbingers
Forex Harbingers Sep 30, 2021 1:51PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Yup, creating 30 trillion dollars out of thin air, and spending it on everything except for 11% average in the American people will do that.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email