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US default could ‘cause a global financial crisis’: Treasury secretary

US Rep. Ilhan Omar (D-MN) (L) talks with Speaker of the House Nancy Pelosi (D-CA) during a rally with fellow Democrats before voting on H.R. 1, or the People Act, on the East Steps of the US Capitol on March 08, 2019 in Washington, DC. (AFP photo)
US Treasury Secretary Janet Yellen gives a speech after she visited the House of Slaves (Maison des Esclaves) at Goree Island off the coast of Dakar, Senegal January 21, 2023. (Reuters photo)

US Treasury Secretary Janet Yellen has warned that the United States could see a recession and "cause a global financial crisis" if it defaults on its national debt as lawmakers grapple over raising the debt limit.

Yellen made the comments on Friday in Senegal, where she is on a three-country visit to Africa. Her remarks came after the US Treasury started taking "extraordinary measures" to fend off a default as the country reached its $31.4 trillion debt ceiling. The Treasury has warned that the “extraordinary measures” would only help for a limited time.

Yellen stated that the actual date on which the Treasury would no longer be able to use these measures is "quite uncertain," and could come in June, AFP reported.

She added that if Congress fails to raise the debt limit, the US could see a downgrading of its debt "at minimum.”

"If that happened, our borrowing costs would increase, and every American would see that their borrowing costs would increase as well," she added.

"On top of that, a failure to make payments that are due, whether it's to bondholders or to social security recipients, or to our military, would undoubtedly cause a recession in the US economy and could cause a global financial crisis," Yellen said.

The debt limit issue has set the table for a showdown between the White House, Democrats in the Senate and a Republican-controlled House.

Far-right Republicans want Democratic President Joe Biden to agree to slash government spending. They argue that radical cuts are needed to reduce borrowing.

"Unchecked spending will have dire consequences," said Republican House Ways and Means Committee Chairman Jason Smith in a statement.

"Congress cannot continue mortgaging our children and grandchildren's futures to borrow from foreign nations like China," Smith added.

Democrats want to quickly pass debt limit legislation, but House Republicans are adamant that they will not cooperate without major spending cuts.

“The Republicans were largely elected to get control of reckless spending,” US Congressman Don Bacon (R-Neb.) said this weekend. “On our side we have to realize… we can’t get everything we want either. I want our side to negotiate with the Democrats in good faith.”

US House Republicans have reportedly put together a plan on what the Treasury should do if the United States does come up against its debt limit.

They threatened to use the debt ceiling as leverage to demand spending cuts from Democrats and the Biden administration.

Yellen speaks of 'unspeakable cruelty' in Africa 

On Saturday in Senegal, Yellen also spoke of the "unspeakable cruelty" and enduring consequences of the trans-Atlantic slave trade.

Yellen visited the House of Slaves, a fort built in the late 18th century on Goree Island off the coast of Senegal as a transit point for human beings before they were forcibly transported across the Atlantic,  Reuters reported. 

"I take from this place the importance of redoubling our commitment to fight for our shared principles and the values of freedom and human rights where ever they are threatened - in Africa, in the United States and around the world," she wrote in the visitor's log.

Yellen underscored the enduring ties that bind Africa and the United States.

"Ultimately, Gorée Island reminds us that the histories of Africa and America are intimately connected. We know that the tragedy did not stop with the generation of humans taken from here," she said.

 


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