Yellen Warns of ‘Economic and Financial Catastrophe,’ but Insists It’s ‘Preventable’

Hold on to your hats, folks! Treasury Secretary Janet Yellen just issued a dire warning about the potential consequences of Congress failing to raise the debt ceiling. In her prepared remarks for the Sacramento Metro Chamber’s annual Capitol-to-Capitol program, Yellen painted a bleak picture of an “economic and financial catastrophe” that could decimate jobs and make loans more expensive for years to come if the government defaults on its obligations.

While acknowledging the U.S. economic recovery from the pandemic recession, Yellen also noted that inflation remains a problem. But it’s the debt-ceiling standoff that she says “could threaten all the progress” of the past two years. The United States hit its $31.4 trillion debt ceiling in January, and Democrats and Republicans are at odds over how to raise it.

Yellen called it a “basic responsibility” of Congress to raise or abolish the borrowing cap, warning that a default on the country’s debt would lead to an “economic and financial catastrophe.” In other words, American businesses would face deteriorating credit markets while the government would probably be unable to issue payments to military families and seniors who rely on Social Security. Yikes!

But there’s hope yet. Yellen emphasized that this economic catastrophe is preventable if Congress votes to raise or suspend the debt limit without conditions. President Joe Biden has also insisted on an unconditional lift of the debt cap, while Republicans have been seeking to tie spending cuts in exchange for their support to raise the borrowing limit.

Last week, House Republicans introduced legislation to raise the debt ceiling by $1.5 trillion while laying out a series of spending cuts amounting to roughly $4.5 trillion. Biden rejected the proposal, claiming the GOP is “not about fiscal discipline” but about “finding ways to squeeze out more of America’s middle class.”

What’s in the GOP Debt-Ceiling Plan?

The Republicans’ 320-page bill, called the Limit, Save, Grow Act of 2023, calls for returning discretionary spending to 2022 levels, capping spending growth to 1 percent per year, and repealing certain tax credits. The plan would also cancel Biden’s student loan forgiveness program, take back unspent COVID-19 relief funds, remove barriers to increased domestic energy production, and reimpose work requirements for many people collecting welfare.

House Speaker Kevin McCarthy (R-Calif.) said on the House floor last week, “If Washington wants to spend more, it will have to come together and find savings elsewhere, just like every household in America.”

So, will Congress come together and find a solution before it’s too late? Or will we witness the first default in our nation’s history? Stay tuned!