Yellen: US must default if debt ceiling not raised by deadline.

U.S. Government May Default on Payments Without Debt Ceiling Increase

Treasury Secretary Janet Yellen Warns of Credit Downgrade

The U.S. government may have to default on some payments if Congress fails to raise the national debt ceiling before June, according to Treasury Secretary Janet Yellen. In an interview with Bloomberg, Yellen stated that failure to raise the debt ceiling would impair the country’s credit rating and force it to default on obligations, including payments to Social Security recipients and Treasuries.

Yellen emphasized that the U.S. has not defaulted on payments since 1789 and should not start now. She also dismissed speculation that her department would prioritize payments of interest and principal on Treasury securities in a default scenario, stating that the White House has never reviewed or approved such a plan.

The Treasury Secretary warned that a U.S. government default might trigger a downgrade of its credit rating and weaken consumer confidence, similar to what happened in 2011. She pointed to the 2011 debt ceiling crisis that prompted Standard & Poor’s to lower the United States’ long-held top-notch AAA sovereign credit rating to AA-plus. Another downgrade would drive up interest rates for consumers and companies seeking loans, potentially leading to a global downturn.

Yellen urged Congress to act quickly to raise or suspend the debt limit, which has been done about 80 times since 1960. Failure to do so would threaten the gains made in the pandemic recovery and undermine U.S. global economic leadership. It would also raise questions about the country’s ability to defend its national security interests.

Key Takeaways:

• The U.S. government may default on payments if Congress fails to raise the national debt ceiling before June.
• Treasury Secretary Janet Yellen warns that a default could trigger a credit downgrade and weaken consumer confidence.
• A downgrade would drive up interest rates for consumers and companies seeking loans, potentially leading to a global downturn.
• Yellen urges Congress to act quickly to raise or suspend the debt limit to avoid a default.