Yellen Warns Of Economic Catastrophe If Congress Fails To Raise Debt Ceiling: 'Default Would Raise Cost Of Borrowing Into Perpetuity'

Treasury Secretary Janet Yellen on Tuesday reportedly cautioned that if Congress failed to raise the government’s debt ceiling — and cause a default — it would lead to an “economic catastrophe” that would push interest rates higher for years to come.

What Happened: In remarks prepared for a Washington event, Yellen said a default on U.S. debt would result in job losses and drive household payments on mortgages, auto loans and credit cards higher, reported Reuters.

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The Treasury Secretary said it was a “basic responsibility” of Congress to increase or suspend the $31.4 trillion debt ceiling and cautioned that a default would endanger the economic progress made by the U.S. since the pandemic.

“A default on our debt would produce an economic and financial catastrophe,” Yellen told Sacramento Metropolitan Chamber of Commerce members, according to the report. “A default would raise the cost of borrowing into perpetuity. Future investments would become substantially more costly,” she said.

Vote: Meanwhile, top Republicans in the House of Representatives said on Tuesday they would move forward with a vote this week on a partisan bill to cut spending and increase the government’s $31.4 trillion debt ceiling, despite indications of growing opposition within their own ranks, reported Reuters.

Last week, House Speaker Kevin McCarthy had unveiled a plan to raise the debt ceiling by $1.5 trillion and trim federal spending by three times that amount. McCarthy's proposal would reduce the total amount of domestic and military spending to 2022-levels and limit growth at 1% annually in years to come.

Yellen pointed out that if the debt ceiling is not raised, U.S. businesses will witness deteriorating credit markets and the government may be unable to issue payments to military families and seniors who rely on Social Security.

“Congress must vote to raise or suspend the debt limit. It should do so without conditions. And it should not wait until the last minute,” she said, according to the report.

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