US Debt Limit Problem Could Cause Global Financial Crisis

On Friday, Treasury Secretary Janet Yellen warned of the global consequences that might occur if the United States government exhausts all exceptional measures and fails to increase the debt ceiling.

The United States reached the $31.4 trillion debt limit imposed by Congress on Thursday, prompting the Treasury Department to take unprecedented steps to maintain the government paying its obligations.

Global Financial Crisis

Although these recently implemented exceptional measures are mostly accounting tactics, Yellen told Amanpour that "the actual date at which we would no longer be able to utilize these measures is unknown, but it may be as early as early June."

Speaking exclusively to CNN from Senegal, Yellen stated that if Congress fails to extend the debt ceiling, the United States might see a minimum downgrade of its debt once the procedures have been exhausted. According to CNN, she stated that the impact of the federal government failing to make payments may be comparable to a "global financial crisis."

The White House refuses to talk with conservative Republicans about lifting the debt ceiling because it believes that a sufficient number of them will ultimately back down from their demands, even while investors, business organizations, and moderate conservatives warn of the perils of a potential default.

Republicans in the House of Representatives of the United States desire cutbacks to some government programs, as per Reuters. According to Yellen, the debt ceiling is for expenditures already authorized by Congress and does not seek more cost.

Yellen also mentioned her recent meeting with Chinese Vice Premier Liu He and stated that the United States and China should maintain regular communication and seek opportunities for collaboration on global issues such as climate change.

US Debt Ceiling

Meanwhile, the CEO of JPMorgan Chase, Jamie Dimon, urged Congress on Thursday not to risk a debt limit crisis, saying that it would devastate the global economy.

The federal government has begun "exceptional steps" to prevent the United States from defaulting on its debt. When these efforts to free up funds run out in around six months, Congress must lift the debt ceiling or face a financial catastrophe.

Under the leadership of House Speaker Kevin McCarthy (R-Calif.), Republicans claim they would not vote to increase the debt ceiling unless expenditure cuts are included. But Democrats and the White House vow they will not agree to budget cuts, setting the stage for a clash.

The US dollar is the world's primary reserve currency, and firms and governments across the globe rely on US federal bonds so that a default may destabilize the global economy. The US will undoubtedly see much higher borrowing rates, and government programs will cease to exist, as per The Hill.

White House economic adviser Brian Deese stated on Thursday that the US would suffer economic damage simply by approaching the debt limit deadline, noting that a leading rating agency downgraded the federal government's credit rating following the 2011 debt ceiling battle that nearly resulted in a default.

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