A failure by the US to raise its debt ceiling would lead to an economic and financial crisis in the country, Treasury Secretary Janet Yellen has cautioned, urging lawmakers to act and not wait “until the last minute.”
The debt ceiling is the maximum amount the US government is legally authorized to borrow to meet its obligations.
Yellen warned during a meeting with business executives from California on Tuesday that a default would result in job losses and push household payments on mortgages and credit cards higher.
The Treasury secretary insisted it was a “basic responsibility” of Congress to increase or suspend the $31.4 trillion borrowing cap.
“A default on our debt would produce an economic and financial catastrophe,” she said, adding: “A default would raise the cost of borrowing into perpetuity. Future investments would become substantially more costly.”
According to Yellen, US businesses would face deteriorating credit markets and the government would likely 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 urged.
The warning comes as the White House and Republicans in Congress are at an impasse over raising the debt ceiling.
Last week, US House of Representatives Speaker Kevin McCarthy floated a plan that includes a $4.5 trillion cut to government spending in order to raise the debt limit by $1.5 trillion.
The White House insists that the two issues should not be linked, while the Democratic-controlled Senate is likely to reject the proposal.
McCarthy earlier warned that the US debt is unsustainable and poses a threat to the nation.
Meanwhile, White House Press Secretary Karine Jean-Pierre claimed late last month that Republicans were threatening to wreak havoc on the US economy, saying that it was time for the GOP to “stop playing games” and agree to pass a “clean” debt ceiling bill.
In January, the Treasury Department notified Congress of the start of “extraordinary measures” that would allow the government to continue paying its obligations until early June, as the US reached its $31.4 trillion debt limit. Yellen then called on lawmakers to “act promptly” to increase borrowing limits in order to avoid a default.