US Treasury Secretary Janet Yellen warned of the dangers of Congress failing to raise the US debt ceiling, stressing that a default could lead to “financial disaster.”

Yellen said at an event in Washington that a collapse in US government debt will lead to job losses, while payments to households on mortgages, cars and credit cards will increase.

“A default on our debt will cause an economic and financial disaster,” Yellen told members of the Sacramento Metropolitan Chamber. “Bankruptcy will raise the cost of borrowing indefinitely. Future investments will become much more expensive,” he warned.

“Congress must vote to raise or suspend the debt limit. He must do so unconditionally. And he should not wait until the last minute, ”Yellen emphasized.

In January, the US Treasury Secretary told lawmakers that the government could only pay its bills until early June without raising the limit.

The U.S. borrowing and debt ceiling, or “debt brake” as it is called, is institutionalized in superpower legislation and specifically stipulates that once the U.S. economy’s borrowing exceeds this limit, most government spending will automatically “freeze” with the inevitable and “freeze” activities of a large part of the government.

Therefore, the issue of a superpower debt limit always acquires a political dimension and comes down to the subject of debate between Democrats and Republicans. A similar tug-of-war over the debt limit existed ten years ago during the presidency of Barack Obama, with marathon negotiations between the parties of the American Congress.

Kevin McCarthy, leader of the Republican-controlled House of Representatives, unveiled a plan last week that would double spending cuts to $4.5 trillion with a $1.5 trillion debt ceiling hike that will be the basis for negotiations in the coming weeks.

The White House insists that the two issues should not be linked, and the Democratic-controlled Senate is likely to reject the proposal.

Financial markets are increasingly worried about the impasse, which has sent the cost of insuring US debt to its highest level in a decade, with financial analysts warning of a growing risk of default.

Source: Reuters