The global financial system faces “chaos” unless Congress acts soon to raise the US debt ceiling, the Treasury Secretary warned yesterday.

Janet Yellen said that American lawmakers must lift the limit on government borrowing to avoid financial catastrophe.

President Joe Biden and Republican lawmakers are in a political stalemate over the lifting of the debt ceiling, which determines how much the US Government can borrow.

Ms Yellen said: “It simply is unacceptable for Congress to threaten economic calamity for American households and the global financial system as the cost of raising the debt ceiling.”

Last week, Ms Yellen said that President Biden’s administration could run out of money to pay its debts as early as June 1.

The Telegraph says the debt ceiling can only be raised if Congress passes legislation signed by the President.

Refusal to negotiate

The Republican-led House of Representatives voted in April to lift the borrowing limit, but only if President Biden commits to huge cuts to spending which the party views as excessive. President Biden has so far refused to negotiate.

“I know he wants to set up a process in which spending priorities and levels are discussed,” Ms Yellen said.

“But these negotiations should not take place with a gun pointed at the head of the American people.”

The debt ceiling has been raised more than 100 times since it was created in 1917 and now stands at $31.4trillion (£24.8trillion). The US Government hit this limit in January, blocking it from borrowing any more money.

The stalemate raises the risk of the country’s first-ever default on its debt, with wide-reaching implications for the global economy.

A default could trigger a huge spike in borrowing costs in America that would then spread around the world.

Jobs at risk

President Biden’s economic advisers have warned that eight million jobs could be lost and 6% wiped off the nation’s GDP.

Ms Yellen’s comments come ahead of President Biden’s meeting with congressional leaders tomorrow to discuss the debt ceiling.

The Treasury has taken “extraordinary measures” in order to finance the government since it hit its borrowing limit in January – including suspending investment in some federal employees’ pension accounts – but Ms Yellen has warned these will soon be exhausted.

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