Treasury Secretary warned that the global financial system will be in chaos if Congress does not act soon to increase the US debt limit.
Janet Yellen stated on Sunday that the US Congress must raise the borrowing limit for government to avoid a financial crisis.
The US President Joe Biden is in a deadlock with Republican legislators over raising the debt ceiling. This determines the amount the US government may borrow.
Ms Yellen said on ABC’s This Week talk show: “It is simply unacceptable that Congress threatens economic calamity to American households and global financial system in order to raise the debt ceiling.”
Ms Yellen stated last week that the Biden administration may be unable to pay their debts by 1 June.
Only a law signed by the president and approved by Congress can raise the debt ceiling.
In April, the Republican-led House of Representatives passed a vote to raise the borrowing limit. However, only if Biden agrees to make huge cuts in spending that the party deems excessive. Biden has refused to negotiate so far.
“I know he’s trying to establish a process where spending levels and priorities are discussed,” said Ms Yellen on This Week. “But these negotiations shouldn’t take place while a gun is pointed at the American people’s heads.”
The US government reached this limit in January and is no longer able to borrow money.
This impasse raises the possibility of a first-ever default by the country on its debt. The global economy would be affected in a major way.
A default in the US could lead to a massive spike in borrowing rates that would spread across the globe.
The economic advisors to President Biden have warned of the potential loss of eight million jobs and a 6pc drop in GDP.
Ms Yellen made her comments ahead of President Biden meeting with congressional leaders to discuss the debt limit on Tuesday.
Treasury has taken “extraordinary steps” to finance the Government since it reached its borrowing limit in January – including suspending investments in some federal employee pension accounts – but Ms Yellen warned that these measures will soon be exhausted.