Yellen Says Treasury Is Trying To Avoid Default As US Approaches Debt Limit

By Kevin • January 22, 2023 5:20 pm • Comments

It seems that there is another thing to worry about which may potentially impact all financial markets including both crypto and stock markets.

It was reported that the US is close to reaching its debt limit once again and Yellen is warning that Congress needs to either take steps to increase the debt limit or suspend it.

The current debt ceiling is now valued at around $31.4 trillion and many investors are concerned if the debt will ever start to decrease.

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As far as what this means for the crypto markets, failure to address this debt limit could cause a default and bring economic damage to all markets.

It is not clear exactly what would happen if a default ever did happen, but many believe riskier assets like crypto would be the first to be affected.

CNBC reports:

The U.S. government has not defaulted on its debt, but the debt ceiling has been raised 22 times from 1997 to 2022, according to the Government Accountability Office.

The Biden administration will prioritize negotiations for a new bill to increase the debt limit after the mid-April tax deadline, according to a senior White House official.

Concessions sought by the new Republican House majority have led to concerns that Congress could have trouble raising the debt ceiling before June. Certain GOP lawmakers have said they want to slash spending as part of an agreement to increase the borrowing limit.

Some Republican representatives have said major spending cuts to key government programs like Medicare and Social Security were part of the negotiations that helped McCarthy secure support from hard-line conservatives and win the speakership.

The fact that the topic of reaching the debt limit is quite interesting because Yellen had previously mentioned multiple years ago that this would not be a concern in our lifetimes.

Fast forward to today, it seems that Yellen has changed her mind about this and that this could be a very real possibility in the future.

As a default would most likely impact the value of the USD, it is clear that crypto should be an option for many Americans as a way to diversify.

After all, many large financial insitutions are already diversifying into crypto and it also makes sense that retail investors should do the same.

The key point is that crypto allows the people to actually control and have custody over their own assets which is something that is difficult to do with fiat currencies.

CBSNews.com reports:

Analysts at Bank of America cautioned in a Friday report that “there is a high degree of uncertainty about the speed and magnitude of the damage the U.S. economy would incur.”

The underlying challenge is that the government would have to balance its books on a daily basis if it lacks the ability to issue debt.

If the government cannot issue debt, it would have to impose cuts equal in size on an annual basis to 5% of the total U.S. economy. But the analysts say their baseline case is that the U.S. avoids default.

Still, if past debt ceiling showdowns such as the one that occurred in 2011 are any guide, Washington may be in a nervous state of suspended animation with little progress until the “X-date,” the deadline when extraordinary measures are depleted. That creates its own set of challenges.

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