US debt default would be a catastrophe: Janet Yellen

Niigata (Japan): The financial leaders of the Group of Seven wealthy nations meet in Japan beginning Thursday as a standoff over the US debt ceiling and potential default looms as one of the biggest potential threats to the global economy.

Treasury Secretary Janet Yellen said one of her priorities in Niigata, a port city on the Japan Sea coast, would be to emphasize the importance of resolving the standoff over the national debt in the world's largest economy. “A default is frankly unthinkable,” she told reporters before the broader meetings began. “America should never default. It would rank as a catastrophe,” she said.

The impasse over spending risks leaving the government unable to pay for teachers in classrooms, medical care for veterans and vital benefits to many Americans, she said. It also is undermining US economic leadership. While in Japan, Yellen also is bound to be seeking to reassure her counterparts over recent bank failures that have raised worries over risks for the global financial system.

The finance ministers and central bank governors are meeting for three days ahead of a G-7 summit later this month in Hiroshima. President Joe Biden said on Wednesday that he and congressional leaders had a “productive” meeting on trying to raise the nation's debt limit. They will meet again Friday to try to avert the risk as soon as June 1 of an unprecedented government default if lawmakers in the divided Congress don't agree to raise the debt ceiling.

Biden said he was “absolutely certain” that the country could avert a default, declaring that failure to meet America's obligations, upon which much of the world's finances are based, “is not an option.” Biden said it was “possible but not likely” that he would need to postpone his trip to Japan, Australia and Papua New Guinea later this month.