The United States: a default will cause a “historic financial crisis”

On Sunday, US Treasury Secretary Janet Yellen strongly appealed to Congress to raise the debt ceiling at the risk of causing a “historic financial crisis”.

In an op-ed published in the Wall Street Journal, Janet Yellen states that “the United States has never failed.”

This is likely to lead to a historic financial crisis (…). A default could lead to higher interest rates, a sharp drop in stock prices and other financial turmoil,” Treasury Secretary Joe Biden wrote.

The debt ceiling, which only Congress can raise, went into effect on August 1.

The United States is prohibited from issuing new debt to finance itself unless the current limit of $28.4 trillion is raised.

This recovery is regularly the subject of political confrontation in Congress. Since the 1960s, the debt ceiling has been raised or suspended about 80 times.

And the Treasury Department indicated last week that the United States will run out of funds “during the month of October.”

In her editorial, Ms Yellen described a series of financial disasters if the borrowing capacity of the United States was not raised, in order to be able to meet the deadlines.

Within days, millions of Americans will run out of money (…). Nearly 50 million seniors will no longer receive their pension checks and soldiers will no longer receive their paychecks.

“We will emerge from this crisis as a permanently weak nation,” the Treasury Secretary added.

Even if the US never fails – “not once,” Ms Yellen asserts – it remembers the 2011 incident “that pushed America to the brink of crisis”.

Under the Obama administration, political deadlock in Congress led rating agency Standard & Poor’s to withdraw the “AAA” rating of US debt, causing a shock wave in the markets.

Ms Yellen adds that the “delay any further” in increasing US debt capacity is “unacceptable”. The past 17 months have tested the economic strength of our country. We are just beginning to emerge from the crisis. We must not go back to a completely avoidable situation.”