Speaking at a conference in Washington, US Treasury Secretary Janet Yellen warned Tuesday that the consequences would be devastating and broad if the government fails to pay its debts in the next few months.
Yellen predicted the fallout would likely see the US government miss critical military and social security payments, as well as undergo a mass firing of government employees in a worst-case scenario. The devastating setback would also cause thousands of households to miss payments on their houses, cars and credit cards, causing a collapse of the US credit market.
With the dire outlook in mind, Yellen called on US lawmakers to quickly raise the debt ceiling before it is too late.
“This economic catastrophe is preventable and the solution is simple,” Yellen pleaded. "Congress must vote to raise or suspend the debt limit and it should do so without conditions, and it should not wait until the last minute."
The US government hit its self-imposed debt ceiling earlier this year in January. The Treasury Department has since been taking “extraordinary measures” to prevent a debt default.
At the time, Yellen warned measures could only hold off default for a few months. She warned that without Congress authorizing another raise of the debt ceiling, the government could default sometime this summer.
House Speaker Kevin McCarthy (R-CA) proposed a bill last week that would raise the debt ceiling an additional $1.5 trillion, but requires a $4.5 trillion cut to government spending. President Biden has called on Congress to raise the debt ceiling without preconditions and has threatened to veto McCarthy’s bill.
The bill would recoup unspent COVID funds, end student debt relief that is currently bogged down in the courts, reverse the $80 billion budget increase for the Internal Revenue Service, repeal green energy tax incentives and tighten work requirements for Medicaid and SNAP recipients.