Yellen Warns of Broken Markets and Disrupted Services as Debt Ceiling Pressure Ramps Up

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Yellen’s Dire Warning on Debt Ceiling

Treasury Secretary Janet Yellen issued a strong cautionary statement regarding the debt ceiling, emphasizing the urgent need for Congress to raise it promptly. Speaking at the Independent Community Bankers of America Capital Summit, Yellen expressed her concerns about the severe repercussions of a default. She stated that a default would not only shake the very foundations of the financial system but also trigger global panic, resulting in market breakdowns, margin calls, and fire sales.

Potential Consequences of Default

Yellen presented a grim outlook, referring to reports by the White House Council of Economic Advisers and Moody’s Analytics. According to these assessments, a default could lead to a significant economic downturn comparable to the Great Recession. The reports projected that around 8 million Americans could lose their jobs, while the stock market might plummet by approximately 45%. Additionally, more than 7 million individuals could be unemployed, and household wealth could suffer a loss of $10 trillion. Yellen also warned that crucial government services would be severely affected if the debt ceiling were breached.

Urgent Plea for Congressional Action

Highlighting the gravity of the situation, Yellen emphasized that the current crisis is entirely avoidable if Congress acts swiftly. She implored lawmakers to raise the debt ceiling as soon as possible. President Joe Biden is scheduled to meet with House Speaker Kevin McCarthy and other congressional leaders to negotiate a deal before the impending deadline. Yellen reaffirmed that June 1 remains the crucial date for potential economic fallout and stressed the need for immediate action.

Disruption to Essential Services and Investor Confidence

Yellen pointed out the potential disruptions that a default would cause in everyday life. Essential services such as air traffic control, law enforcement, border security, food safety, communications systems, and national security would be at risk when the government stops paying federal employees and contractors. The Treasury secretary also highlighted the adverse effects of the ongoing impasse on investor confidence, noting that investors have become more reluctant to hold government debt maturing in early June. Moreover, the debt burden on American taxpayers has already increased due to the standoff.

In conclusion, Yellen’s warning serves as a clarion call to Congress, emphasizing the devastating consequences of failing to raise the debt ceiling. The potential economic downturn, loss of jobs, and disruption of essential services underscore the urgency of the situation. Yellen urges lawmakers to set aside their differences and act promptly to prevent a catastrophic financial and economic crisis.

Source: ©Alex Wong/Getty Images ; CNBC
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Yustika Kusuma Putri, she is social media marketer from Indonesia. I currently work as a Media Manager in Technologie Omicrom Sendas inc.
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