Janet Yellen sounds the alarm: “I really expect this to cause a recession”

“I really expect this to cause a recession” , said Economy and Finance Minister Joe Biden, interviewed on CNBC.

Republicans refuse to vote to raise the country’s maximum debt level, a procedure usually routine.

“It would be catastrophic (…) for us to be in a position where we lack the resources to pay government bills” , a t -she again warned.

The debt ceiling is the maximum amount of indebtedness of the United States. It was suspended in 2019 as part of an agreement between the Trump administration and the then-Democratic opposition, and has been in effect again since August 1.

“Irresponsible” Republicans

Fixed at a little more than 28 trillion dollars, the Treasury estimates that it will be reached on October 18. The country could then be in default.

“This really undermines confidence (…) in the credit of the United States” , in the assurance that the country repays its debts, stressed Janet Yellen, stressing that this could lead to unpaid pensions, unpaid soldiers, families who will have to wait for their help for childcare.

“And of course our debt itself” , she added: “US Treasury securities have long been considered the safest asset on the planet, which is part of the reason the dollar’s reserve currency status, and to challenge that by not paying any of our overdue bills would be truly a catastrophic result. “

If the debt ceiling is not raised or suspended, indeed, the US government will have to overnight. next day stop living on credit and cut spending.

This would have consequences these unforeseeable events on American finance and economy but also, by extension, international ones, dominated by the dollar and irrigated by American Treasury bills.

This operation, usually a simple formality , is this time caught in the grip of partisan blockades between Democrats and Republicans.

Joe Biden stepped up on Monday, indicating that because of Republican opposition “irresponsible” , he could not “not guarantee” that the United States would not default on its debt on October 18, for the first time in their history.

The Democrats indeed have too slim a majority in the Senate to be able to raise the debt ceiling with their own votes. They could in theory, by resorting to a complex procedure, bypass the Republican blockade, but they would then risk not being able to do so before the deadline of October 18.