NIIGATA, JAPAN: Political brinkmanship over raising the US debt ceiling risks “serious economic costs” even without the “catastrophe” of a default, Treasury Secretary Janet Yellen warned Thursday at G7 finance talks in Japan.
Hours earlier, former president Donald Trump urged Republican legislators to trigger the first-ever US debt default by refusing to lift the limit if Democrats do not agree to spending cuts.
President Joe Biden has also threatened to call off his trip to Asia, including in-person attendance at next weekend’s Group of Seven summit, if the deepening standoff is not resolved soon.
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“In my assessment – and that of economists across the board – a default on US 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,” she added as a three-day meeting of finance ministers and central bank chiefs began in the city of Niigata.
The lifting of the so-called debt ceiling – a limit on government borrowing to pay for bills already incurred – is often routine.
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But budget-minded 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 United States could run out of money to meet its financial obligations as early as June 1.
On Thursday she recalled a similar impasse in 2011, which resulted in the United States losing its coveted AAA debt rating.
“There is no good reason to generate a crisis of our own making,” Yellen said.
“The US Congress has raised or suspended the debt limit almost 80 times since 1960. I urge it to act quickly to do so once again.”
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A high-stakes meeting between 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 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.