Although the US Senate has approved legislation to temporarily raise the federal government's debt limit by December 3, the risk of a financial crisis remains high. Negotiations between Democratic and Republican leaders are a long and delicate process. Since Senators have voted 50-48 to pass the bill, the final adoption of the law is still in question.
Against this background, US Treasury Secretary Janet Yellen expressed deep concerns over a possible economic catastrophe. She supposes that the economy could fall into a recession if Congress fails to address the federal government’s borrowing limit. This measure is necessary to fund the previous initiatives adopted by Congress rather than to pay new bills, she noted. If lawmakers do not make a decision by December, the effects could be severe, Yellen warned.
“US Treasury securities have long been viewed as the safest asset on the planet. That partly accounts for the reserve status of the dollar. And placing that in question by failing to pay any of our bills that come due would really be a catastrophic outcome,” Yellen said. “I fully expect it would cause a recession as well,” she added.
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