Yellen Warns Against Economic Catastrophe

Ibeth Rivero

US Treasury Secretary Janet Yellen said that there may be a catastrophe if the Senate is unable to reach an agreement regarding the debt ceiling.

"A failure to raise the debt ceiling would probably cause a recession and could even result in a financial crisis. It would be a catastrophe," Yellen said during an interview.

Yellen was making a reference to the Senate's recent decision to grant an extension of the debt ceiling until early December, claiming that the country now risks defaulting on its debts, which would be catastrophic for the economy. The US Senate approved last week an extension to the debt limit, which is expected to be approved by Congress this Tuesday and signed by President Joe Biden.

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According to Yellen, if the US government defaults, social security payments for around 50 million Americans would be at risk, as well as the salaries for members of the US military (mainly veterans’ benefits) and federal workers. Yellen highlighted that raising the debt ceiling is not necessary to fund new spending programs but to pay pre-existing bills.

This would also put at risk the United States’ credit ratings, which would affect the performance of treasuries, pushing investors to ask for higher interest rates to compensate for the increased risk and increasing borrowing costs. This event would also be devastating for the stock markets, as it would spread panic among investors.

There's been a dispute between the Democratic and Republican parties regarding this issue. According to Senate Minority Leader Mitch McConnell, the Republican Party won't aid the Democrats in their efforts to mitigate the consequences of the party's fiscal mismanagements, adding that now that an extension was granted, it should be used to address the debt ceiling issue through standalone reconciliation.

The United States continues struggling with the spread of the COVID-19 virus, which so far has had a negative effect on the country's economic performance. Since the beginning of the pandemic, 45,204,373 cases have been reported, including 733,575 related deaths.

To stop the spread of the pandemic, the government tries to advance a very ambitious vaccination campaign, which so far has been relatively successful. Around 402 million doses have been distributed among the population, with 187 million individuals fully vaccinated, accounting for 56.8% of the total population.

By 9:19 GMT, the US Dollar Index, which measures the performance of the US dollar relative to its competitors, has gained 0.16%, hitting the 94.21 level.

Ibeth Rivero

Ibeth contributes daily market commentary in both English and Spanish (both of which she speaks fluently) and she also manages the DailyForex mobile app to ensure that traders around the world are getting important market updates in real time.

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