US Treasury Secretary warns of country's risk of 'economic collapse' due to debt default

At a hearing before the US House Ways and Means Committee on March 10, Ms. Yellen emphasized that not increasing the $31.4 trillion borrowing limit would threaten the economic progress the US has achieved since the Covid-19 pandemic.

US Treasury Secretary Janet Yellen. Photo: Reuters

“According to my assessment and that of economists, if we default on our debt, it will trigger an economic and financial disaster. I call on all members of Congress to work together to resolve the debt limit unconditionally and not wait until the last minute,” the US Treasury chief said.

Asked about the possibility of prioritizing payments to cover the US debt first from available cash sources, as some Republicans have suggested, Ms. Yellen replied that it was "not a solution to the debt ceiling problem." Reuters quoted this official as saying that the only way to avoid a spike in interest rates after a default is for the US to commit to paying its bills on time.

“If we don't do that and think there's some shortcut to avoiding economic chaos, we're kidding ourselves, because not paying the government's bills will lead to economic and financial collapse,” Ms. Yellen explained.

Some Republicans have asked President Joe Biden to make spending concessions in exchange for raising the debt ceiling, but Ms. Yellen has refused to negotiate on the issue, saying it all comes down to making good on previous spending decisions by Congress.