WASHINGTON: US Treasury Secretary Janet Yellen cautioned that a potential default on government debt would have far-reaching consequences, impacting millions of Americans and potentially triggering a recession. Speaking at a community bankers’ gathering, Yellen highlighted the potential disruptions to essential government operations, including air traffic control, law enforcement, border security, national defense, and telecommunications systems.
Yellen emphasized that the ensuing financial crisis could exacerbate the severity of the economic downturn, leading to a domino effect across global financial markets. The consequences could include widespread panic, margin calls, runs on assets, and fire sales, amplifying the overall economic turmoil.
Earlier, Yellen informed Congress that the Treasury could only sustain the payment of the US government’s bills until June 1 without an increase in the debt limit. This places significant pressure on Republicans in Congress and the White House to reach a timely agreement. Failure to do so would result in severe economic and financial repercussions, according to Yellen.
The Treasury Secretary warned that such a scenario would plunge the US economy into an unprecedented crisis. Crucially, 66 million Social Security beneficiaries, as well as numerous veterans and military families, would likely experience delayed payments. Yellen stressed that the resulting income shock could lead to a recession, causing widespread job losses and business closures.
Yellen further highlighted that the ongoing deadlock over the federal debt limit has already increased borrowing costs and contributed to the nation’s growing debt burden. She urged Congress to avoid a repeat of the 2011 debt ceiling brinkmanship that resulted in the US credit rating downgrade.
In the event of a potential US government default, safe-haven assets such as gold and Bitcoin could experience significant impacts. Historically, during times of economic uncertainty, investors tend to flock to safe-haven assets as a store of value and to protect against volatility in traditional markets. Gold, a traditional safe-haven asset, often sees increased demand during financial crises, as it is seen as a hedge against inflation and a reliable store of wealth.
Similarly, Bitcoin, a decentralized digital currency, has gained attention as a potential hedge against traditional market turbulence. Bitcoin’s limited supply and its independent nature from traditional financial systems have attracted investors seeking alternative assets. If a US government default were to occur, it could potentially lead to increased interest in safe-haven assets like gold and Bitcoin as investors seek to safeguard their wealth from the potential economic downturn and market instability. However, it’s important to note that cryptocurrency markets are highly volatile and subject to various factors that can influence their value.