Raising US debt limit only way to avoid economic catastrophe: Yellen

Niigata, Japan, May 11 (EFE).- Raising the United States’ debt limit and avoiding a default is the only way to avoid an economic catastrophe, US Treasury Secretary Janet Yellen told reporters ahead of the Group of Seven finance chiefs’ meeting in Japan Thursday.

“In my assessment – and that of economists across the board – a default on US obligations would produce an economic and financial catastrophe,” Yellen said at a press conference at the Toki Messe convention center in the Japanese port city of Niigata.

A default on US debt “would spark a global downturn that would set us back much further,” and undermine Washington’s global economic leadership, she added.

The US treasury chief also warned against “brinkmanship over the debt limit” saying it could also “impose serious economic costs.”

“There is no good reason to generate a crisis of our own making. The US Congress has raised or suspended the debt limit about 80 times since 1960. I urge it to act quickly to do so once again,” Yellen added.

Yellen’s intervention at the G7 meeting for finance ministers and central bank governors – who are meeting over the next three days – comes at a rocky time for the US economy.

The US suffered two of its largest banking failures in recent history when the Silicon Valley Bank and Signature Bank collapsed in March.

The banking crisis sparked widespread panic and triggered a sharp decline in global bank stock prices.

The US could run out of money in a matter of weeks if Congress does not strike a deal to raise the debt ceiling to borrow more money.

Failing to reach an agreement could see the US default on its debt which would have a disastrous effect on the global economy.

During the press conference, Yellen addressed other key areas that the G7 would be discussing over the coming days.

The economist was positive about the global economy saying it was in a “better place than many predicted six months ago” thanks to a pause in rocketing inflation.

Yellen said that one of the top aims of the G7 meeting in Japan was to tackle inflation, sustain growth, and assist in mitigating the impact of external shocks, including in developing countries.

The group of wealthiest countries would also be addressing aid to Ukraine, and “longer-term work to bolster economic resilience and security,” she added.

Regarding boosting economic resilience, Yellen said the G7 was working towards building reliable and secure supply chains in what she dubbed “friendshoring.”

“Supply-chain diversification efforts can open up more trade and investment opportunities for developing countries that have traditionally only had limited footprints in global supply chains,” she added.

The US treasury secretary called on more coordination to help emerging economies sustain their finances amid rising energy and food prices, and to undertake collective policies that contribute to improving the situation of those countries.

Joining the group of most industrialized economies in Japan are a host of other nations that have been invited to the summit, including India, Brazil, Indonesia and Comoros, which currently holds the rotating presidency of the African Union.

Redoubling the G7’s support for Ukraine and increasing economic pressure on Russia is also high on the agenda.

Yellen welcomed the fact that sanctions on Russia were “having an impact.”