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A default on US debt would cause “a global financial crisis”, says Janet Yellen

A default on US debt would cause “certainly a recession in the United States and could lead to a global financial crisis”warned Friday, January 20 the American Minister of Finance, Janet Yellen, questioned on CNN.

Read also: Janet Yellen warns of risk of ‘historic financial crisis’

The United States reached its debt ceiling on Friday, set by Congress at more than 31 trillion dollars and for the time being elected officials have not been able to agree on an increase or a suspension of the ceiling. .

In itself, this event is not exceptional since this ceiling has been the subject of legislative intervention seventy-nine times since 1960.

The specter of a recession

But the Republican majority in the House of Representatives wants to take advantage of this subject to put pressure on the Democrats in order to lower a certain number of expenses, in particular those resulting from the programs put in place since the beginning of the mandate of President Joe Biden, as well as the taxes.

Read also US Congress reaches agreement to raise debt ceiling and avoid default

In the event of an American default, “our borrowing costs would rise and every American would see theirs follow the same trend”.

“But more than that, failure to make payment, whether of our debt obligations, to the recipients of social spending, or to our military, would be sure to cause a recession in the United States and could result in a global financial crisis”assured Ms. Yellen.

“It would undoubtedly undermine the role of the dollar as a reserve currency used in transactions all over the world. A lot of Americans would lose their jobs”she insisted.

With the ceiling reached, the US Treasury can no longer borrow, even in the short term for working capital needs. It has implemented a debt issuance suspension period that will last until June 5.

Exceptional measures

Of the “exceptional measures” have also been taken, the Minister specified, including the cessation of payment to several pension funds and health or disability benefits for public officials, technical adjustments which are not immediately necessary for the payment of pensions.

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These measures allow the US administration to see ahead but can only be temporary and, if Congress fails to reach an agreement, the United States could eventually find itself in a situation of default.

Ms. Yellen was also received on Friday by Senegalese President Macky Sall, also current chairman of the African Union, with whom she discussed relations with Africa.

Read also: In Senegal, the Parliament rejects a motion of censure of the opposition to Macky Sall

“We are here as a partner and we will help to work for an African success”she said after the meeting.

The trip is the first in a long-awaited series from top Biden administration officials. The United States wants to regain influence on the African continent, the terrain of fierce economic and political competition between the great powers. Ms. Yellen also indicated that President Biden would visit sub-Saharan Africa by the end of this year.

The World with AFP

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