The United States could spur a global financial crisis if Washington fails to reach a deal on the US debt limit, Treasury Secretary Janet Yellen warned on Friday.
The government could not choose to pay some bills over others if Congress fails to raise the $31.4 trillion borrowing limit, Yellen warned in comments made to reporters in Senegal, during a tour of African nations.
Her remarks came as President Joe Biden and top Republican Kevin McCarthy made plans to meet to discuss the issue.
Yellen said the Treasury Department cannot prioritize its payments, as some Republicans have suggested.
“Treasury systems have all been built to pay our bills, to pay all of our bills when they are due and on time, and not to prioritize one form of spending over another,” she said.
Government officials and outside experts say that prioritizing certain payments over others would mark a radical departure that likely would shake global economies.
Biden, meanwhile, told a gathering of US mayors that “we’re going to have a discussion” with Republican House Speaker McCarthy about raising the US debt ceiling.
Date of talks not known
McCarthy said on Twitter he would meet Biden to “discuss a responsible debt ceiling increase to address irresponsible government spending.”
It was unclear when the conversation would occur or what message Biden intends to deliver to McCarthy, who is under pressure from far-right Republicans to withhold action on a debt limit increase until significant US budget cuts are first sketched out.
White House officials have previously said they will not negotiate over raising the debt ceiling, and administration officials are betting that Republicans will eventually buckle under pressure from investors and businesses worried about the prospects of default.
The US government hit its $31.4 trillion borrowing limit on Thursday, a figure that reflects money already spent by the government. Yellen has told congressional leaders her department has begun using extraordinary cash management measures to stave off default until early June.
Markets fear US default
Yellen’s remarks came as she kicked off a 10-day trip to Africa to discuss economic growth on the continent.
But the percolating battle over the US debt limit later this year already is rattling markets and investors. They are worried over the prospects of an historic default by Washington if budget disagreements cannot be ironed out.
Yellen said in an interview with CNN that a potential US default could damage the global economy.
“It could cause a global financial crisis. It would certainly undermine the role of the dollar as a reserve currency that is used in transactions all over the world,” she said, adding that in such a scenario many people would lose their jobs and see their borrowing costs rise.
Yellen noted the debt ceiling needs to be raised to cover borrowing on spending already authorized by Congress.
“It is simply about paying bills Congress has already authorized,” she told CNN. “This is something you can’t negotiate over or bargain about.”
Former President Donald Trump, who already launched a 2024 campaign for the White House, urged fellow Republicans to back away from seeking cuts that he said would “destroy” the popular Social Security programme for retirees and the Medicare health program for those age 65 and older.
- Reuters with additional editing by Jim Pollard