US Debt Standoff Sparks Global Concerns: Yellen Warns of Serious Economic Costs

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US Treasury Secretary Janet Yellen has warned that political brinkmanship over raising the US debt ceiling could cause “serious economic costs,” even without the catastrophic event of a default. Yellen made this statement at a G7 finance meeting in Japan, as 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 impasse is not resolved soon. 

Yellen emphasized that a default on US obligations would result in an economic and financial catastrophe, and that brinkmanship over the debt limit could also cause serious economic costs. The debt ceiling is a limit on government borrowing to pay for bills already incurred, which is usually lifted in a routine manner. However, budget-minded Republicans have vowed to only raise the limit from its current $31.4 trillion maximum if spending curbs are enacted. 

Yellen also recalled a similar impasse in 2011, which resulted in the United States losing its AAA debt rating. She urged the US Congress to act quickly, reminding them that they have raised or suspended the debt limit almost 80 times since 1960. 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.

As of last week, Yellen warned that the United States could run out of money to meet its financial obligations as early as June 1. With the possibility of a default looming, it is crucial that Congress acts quickly to resolve the impasse. It is important to note that political brinkmanship and refusal to raise the debt limit could cause serious economic consequences, even without the catastrophic event of a default. The United States has raised or suspended the debt limit numerous times in the past, and Yellen urges Congress to act once again to avoid a crisis of their own making.

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