Yellen Warns US Faces 'Catastrophic' Risks, Recession If Unable To Raise Debt Limit By Oct 18

U.S. Treasury Secretary Janet Yellen issued a dire warning on Tuesday, saying that the nation would face “catastrophic” risks if the debt ceiling is not raised by Oct. 18.

Failure to do so would cut into the nation's ability to meet its debts, undermine the nation’s credit and push the economy back into recession, she added.

“I do regard Oct. 18 as a deadline. It would be catastrophic to not pay the government’s bills, for us to be in a position where we lacked the resources to pay the government’s bills,” Yellen said in an interview with CNBC. “I fully expect it would cause a recession as well.”

Yellen has repeatedly cautioned lawmakers that failure to raise the debt ceiling, the cap on the amount of money the government can borrow at a time, could lead to the first default in U.S. history. In the present, the Treasury itself is currently relying on emergency “extraordinary measures” to pay off U.S. debt receipts since last June when the debt ceiling was last reached.

The consequences of a default would be far reaching across the economy. It could cut into the government's ability to pay Social Security checks to up to 50 million seniors, push interest rates higher and rattle global markets by undermining both demand and faith in the U.S. dollar.

On Monday, President Joe Biden lashed out at his rivals in the Republican Party as “hypocritical, dangerous, and disgraceful” for their opposition to raising the debt limit. In a fiery press conference, Biden told Republican senators led by Senate Minority Leader Mitch McConnell to “get out of the way” and allow Democrats to suspend the debt limit.

Eliminating the debt limit would remove the cap on borrowing, and is a move that Yellen herself lent support to last week in testimony before the House.

“If to finance those spending and tax decisions, it’s necessary to issue additional debt, I believe it’s very disruptive to put the president and myself, the Treasury secretary, in a situation where we might be unable to pay the bills that result from those past decisions,” said Yellen.