“This would probably precipitate a historic financial crisis (…). The default could trigger a surge in interest rates, a sharp drop in stock prices and other financial troubles,” writes Finance Minister Joe Biden.
The debt ceiling, which only Congress has the prerogative to raise, came into effect on August 1.
It prohibits the United States from issuing new loans to finance itself if the current limit of 28.4 trillion dollars is not raised.
This recovery is regularly the subject of political arm wrestling in Congress. Since the 1960s, the debt ceiling has been raised or suspended some 80 times.
Last week, the Treasury services indicated that the United States would run out of money “during the month of October”.
Ms. Yellen describes in her editorial a cascade of financial catastrophes if the borrowing capacity of the United States, in order to be able to meet its deadlines, was not raised.
In a few days, millions of Americans would be short of cash (…). Nearly 50 million elderly people would no longer receive their retirement checks and the soldiers would no longer be paid, ”she wrote.
“We would get out of this crisis a permanently weakened nation,” said the Secretary of the Treasury.
Even if the United States has never failed – “not once”, underlines Ms. Yellen -, it recalls the episode of 2011 “which brought America to the brink of crisis”.
Under the Obama administration, the political deadlock in Congress led the Standard and Poor’s rating agency to withdraw the “AAA” rating from US debt, causing a shock wave in the markets.
“To delay any longer” in raising the debt capacity of the United States “is not tolerable,” adds Ms. Yellen. “The last 17 months have put the economic strength of our country to the test. We are just emerging from the crisis. We must not plunge back into a situation which is completely avoidable,” she concludes.
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