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U.S. default would undermine world economy, says Yellen

While in Niigata, Japan, for the G7 Finance Ministers and Central Bank Governors' Meeting, U.S. Treasury Secretary Janet Yellen reiterated warnings Thursday against Congress defaulting on its financial obligations . Photo by Bonnie Cash/UPI
While in Niigata, Japan, for the G7 Finance Ministers and Central Bank Governors' Meeting, U.S. Treasury Secretary Janet Yellen reiterated warnings Thursday against Congress defaulting on its financial obligations . Photo by Bonnie Cash/UPI | License Photo

May 11 (UPI) -- U.S. Treasury Secretary Janet Yellen reiterated warnings against the notion that American lawmakers may permit the country to default on its debt, stating the consequences of it doing so would undermine U.S. and world economies.

Yellen made the comments Thursday to reporters during a doorstop interview in Japan ahead of a G7 Finance Ministers and Central Bank Governors' Meeting in Niigata where the issue overshadowed other business.

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The secretary led her address to the media by remarking first on the topic, saying their best estimate is default could come as early as June 1 and that it would be "an economical and financial catastrophe" if Congress allowed U.S. bills to go unpaid.

President Joe Biden and Republican leaders have been fighting over the debt ceiling for months.

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Biden has called on Republicans to raise the debt ceiling without conditions while House majority leader Kevin McCarthy has attempted to use default as leverage to achieve spending cuts.

Congress has raised the debt ceiling 78 times since 1960, the majority during Republican presidencies including three times during the previous Trump administration.

Hours before Yellen spoke to the press, former President Donald Trump said in a Wednesday night televised town hall that Republicans should let the the nation default if the White House doesn't meet their demands.

"If they don't give you massive cuts," he said, "you're going to have to do a default."

Asked about the former president's comments, Yellen said she was aware of them and the notion of letting the United States default is "unthinkable."

"America should never default. It would be tremendously, economically and financially damaging," she said. "The notion of defaulting on our debt is something that would so badly undermine the U.S. and global economy that I think it should be regarded by everyone as unthinkable."

Debt ceiling negotiations are ongoing with another meeting scheduled for Friday, she said, adding that she is "very hopeful" that the differences can be bridged and default avoided.

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However, there has also been speculation that if Congress can't raise the debt ceiling Biden could use the 14th Amendment of the Constitution to bypass the appropriated limit and issue debt to pay the government's bills.

Biden has said it's not off the table and he is considering it, but that it will most likely face litigation if he goes down that route.

Yellen on Thursday added that the Constitution strategy would be "legally questionable."

She added that she is often asked what she would do if the country did default -- and that is a scenario, she said, she doesn't want to discuss.

"There are choices to be made if we got into that situation, but as you think about each possible thing that we could do, the answer is there is no good alternative that could save us from catastrophe, and so I don't want to get into ranking which bad alternative is better than others," she said.

"The only reasonable thing is to raise the debt ceiling and to avoid the dreadful consequences that will come if we have to make those choices."

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