Yellen warns U.S. House members of 'economic collapse' from default

U.S. Treasury Secretary Janet Yellen urged members of the U.S. House of Representatives on Friday to raise the federal debt ceiling without conditions, warning that a default on U.S. debt would cause "economic and financial collapse."

Yellen, in budget testimony before the Republican-controlled House Ways and Means Committee, said that failure to increase the $31.4 trillion borrowing cap would threaten the economic progress that the U.S. has made since the COVID-19 pandemic.

"In my assessment - and that of economists across the board - a default on our debt would trigger an economic and financial catastrophe," Yellen said. "I urge all members of Congress to come together to address the debt limit – without conditions and without waiting until the last minute."

Asked about the possibility of prioritizing payments to cover U.S. debt payments first from available cash resources, as some Republicans have suggested, Yellen said that was "not a solution to the debt ceiling issue."

"Prioritization is simply not paying all of the government's bills when they come due. That is something we have never done since 1789. And that really is just default by another name."

The only option to avoid a crushing spike in interest rates following a default is for the U.S. to commit to pay its bills on time, she said.

"If we don't do that and think that there's some shortcut around it that will avoid economic chaos, we're kidding ourselves because not paying the government's bills will produce economic and financial collapse," she said.

Some Republicans have demanded spending concessions from U.S. President Joe Biden in exchange for raising the debt ceiling. Yellen has refused to negotiate over raising the debt ceiling, arguing that it is about making good on Congress' past spending decisions.