US Treasury Secretary Warns "Destructive Consequences if Debt Ceiling Suspension Not Extended"

July 31 Debt Ceiling Suspension Set to Expire
If Limit Exceeded, Government Cannot Issue Additional Bonds
Yellen: "Serious Financial Crisis Possible... Default Risk"

Janet Yellen, Secretary of the Treasury [Photo by EPA Yonhap News]

[Asia Economy Reporter Kim Suhwan] U.S. Treasury Secretary Janet Yellen has strongly urged Congress to extend the government’s debt ceiling suspension, which is set to expire in July.

On the 23rd (local time), Secretary Yellen appeared at a Senate hearing and stated, "If Congress does not act, it will lead to devastating consequences resulting in a government default."

She also emphasized, "Failing to raise the debt ceiling will trigger a severe financial crisis and threaten the job market that is recovering from the COVID-19 pandemic."

Currently, the government’s debt ceiling is set at approximately $22 trillion. During the Trump administration in 2019, it was decided to suspend this limit for two years, with the suspension period scheduled to expire on July 31.

As of the end of May, the total U.S. government debt reached $28 trillion, already exceeding the debt ceiling. If the suspension expires in August, the government will no longer be able to issue additional Treasury bonds.

Accordingly, the government must implement so-called "extraordinary measures," such as using tax revenues or reallocating other federal budgets, to fulfill budgetary spending items. In the worst-case scenario, a federal government default could occur.

Secretary Yellen expressed that Congress must take necessary action before July, as a recess is scheduled for August. This reflects the U.S. government’s stance that a default must be prevented at all costs while promoting economic recovery after the COVID-19 pandemic.

Yellen stated, "The debt ceiling will be exceeded during the August recess," and added, "Congress must immediately extend the suspension or raise the limit."

In U.S. politics, calls to raise the debt ceiling are spreading, mainly among the ruling party.

Richard Neal, a Democrat and chairman of the House Ways and Means Committee, issued a statement immediately after Yellen’s remarks, saying, "We must not jeopardize the progress we have made so far," and "The debt ceiling issue must be resolved by next month without fail."