Treasury Secretary Janet Yellen warned on Tuesday that if Congress fails to address the federal government’s debt ceiling before a catastrophic default on the US debt, the economy will enter a recession. Yellen said she considers October 18 to be the deadline to address the issue.
For weeks, Treasury Secretary Yellen has warned federal government officials that the US may be unable to repay its debts by October 18. Lawmakers must increase or suspend the debt ceiling before that day, or the United States could default for the first time. President Joe Biden urged Congress to increase the debt ceiling this week to avert an economic disaster.
While the United States has never defaulted on its debts, experts believe a default would cause broad damage by raising interest rates, destroying trust in Washington’s ability to pay future liabilities on time, and potentially delaying Social Security payments to some 50 million people. A default might also convince some countries to keep less Treasury bonds, lowering demand for the dollar.
Yellen said treasury securities in the US have long been considered the safest asset on the planet, which partially explains why the dollar is regarded as the world’s reserve currency. And putting that in jeopardy by failing to pay any of our debts would be a disaster.
Lawmakers on both sides of the political aisle agree that raising the debt ceiling is necessary to avoid economic chaos. However, as of Tuesday morning, the two parties looked to be a long way from reaching an agreement.
Do you think Congress will avoid disaster, or will you be positioning yourself a default?
I am not a financial advisor and my comments should never be taken as financial advice. Investments come with risk, so always do your research and analysis beforehand.