President Joe Biden and Republican lawmakers are still at an impasse over actions aimed at preventing a debt default
A failure to reach an agreement on raising the debt ceiling would have a serious impact on both the US and the global economy, UK Finance Minister Jeremy Hunt told reporters after the G7 meeting of finance ministers and central bank governors in Japan on Saturday.
US President Joe Biden and the Republican-controlled House of Representatives are currently at an impasse over raising the country's $31.4 trillion borrowing limit.
Republicans are calling for government spending cuts before they approve a higher limit, while Biden insists on a "clean" increase without linking the two issues. The failure to reach an agreement has raised the threat of the US defaulting on its debt, which Hunt called a "very serious threat to the global economy."
"It would be absolutely devastating if America, which is one of the biggest motors of the global economy, was to have its GDP knocked off track by not reaching agreement," he warned. Hunt said he hopes the sides will eventually come to an agreement, though "it's not for us to say how that issue should be resolved."
A debt default would mean the US government is unable to meet its outstanding obligations, including welfare payouts, interest on the existing debt, and even paychecks for military service members. The alarm was first raised by Treasury Secretary Janet Yellen in January when the US hit its debt ceiling.
The Treasury has since been using special accounting measures to stave off default, but, according to Yellen, they will only last until June 1, when the default will become imminent unless the debt ceiling is raised.
Speaking at a press conference earlier this week, Yellen reiterated her warnings, saying that a debt default "would rank as a catastrophe" and could bring about a global economic downturn.
The US Congressional Budget Office report issued on Friday also warned of a default in early June.
"There is a significant risk that at some point in the first two weeks of June, the government will no longer be able to pay all of its obligations," the CBO warned, adding that the government's debt payments "will remain uncertain throughout May, even if the Treasury ultimately runs out of funds in early June."
Biden was scheduled to discuss the debt ceiling with congressional leaders on Friday, but the meeting was postponed until next week as both sides continue to discuss the potential limits to federal spending, sources told Reuters.
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