WASHINGTON (CNBC) - Treasury Secretary Janet Yellen has warned that the U.S. is facing a catastrophic debt crisis if lawmakers fail to raise the borrowing limit, saying the country would face a spiraling recession.
“It would be devastating,” Yellen said to Axios in an interview from Johannesburg, South Africa. “It’s a catastrophe.”
“Of course, it makes me nervous,” she added
The U.S. reached its technical borrowing limit of around $31.4 trillion earlier this month, but Yellen has been able to enact accounting moves that will allow the federal government to pay its bills until sometime in June. Before then, lawmakers must agree to lift or suspend the debt ceiling in order for the government to take on new debt to pay its responsibilities.
But leaders from both parties seem far apart on a potential compromise. The White House and many Democrats want to raise the debt ceiling quickly, but Republicans want concessions on spending cuts before agreeing to raise the borrowing limit.
And while lawmakers tangle in negotiations, Yellen is sounding the alarm on what a debt default would do to the American and world economy. A debt default would cause a “financial crisis,” Yellen told Axios. Painting a grim picture of what the landscape might look like, Yellen also said the U.S. would have to cut spending if not given the ability to take on new debt, slashing any hopes of an economic stimulus. Consumer spending then might nosedive as people lose hope in the economy.