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US Treasury Secretary warns of US default

The United States is threatened with a government default on June 1, 2023, as US Treasury Secretary Janet Yellen warned. However, the available reserves could also not be used up until a few weeks later.




Strong warning from the US Treasury Secretary

The urgent warning is based on an estimate based on currently available data. The exact date of the insolvency cannot be named with certainty, as Yellen says.

The background is a dispute about raising the debt ceiling, which is currently being fought out between Democrats and Republicans in the USA. The upper limit, which determines how much money the state can borrow, is 31.4 trillion US dollars.




The US government can no longer incur debt

This applicable debt ceiling has been reached, as has T-Online.de writes. Now the Treasury has to tap reserves to pay bills.

While Yellen warned in January that the payment default was imminent at the beginning of June, the US Congress recently assumed that the money could last until at least July or even September.




ECB boss Lagarde: Big, big catastrophe

The consequences of a US default would be serious. Yellen himself said that the default could plunge the global economy into a crisis. ECB President Christine Lagarde declared such a scenario a “big, big catastrophe”.

If economist Volker Brühl has his way, a stock market crash would follow. Price slumps in shares of ten percent are possible, according to Brühl. In addition, large investors would have to expect price losses in US government bonds in their portfolios, such as Spiegel Online writes. And: The dollar exchange rate could also collapse.




Republicans want US budget cuts

Ultimately, it is unlikely that the US would allow a default. In the event of a possible increase in the debt ceiling, however, the US Republicans want to extort concessions from their political opponents.

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The chairman of the US House of Representatives, Republican Kevin McCarthy, wants to push through significant savings. US President Joe Biden is expected to agree to cuts in certain government spending, such as investments in climate protection.




Damage to confidence in the US economy

Biden, however, had stated that he did not want to be blackmailed. Yellen, in turn, recommended that the two parties to the dispute come to an agreement quickly. Waiting until the last moment to suspend or raise the debt limit will damage confidence in the US economy.

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