Volkswacht Bodensee - US debt 'brinkmanship' risks serious costs: Yellen

Hours earlier, former president Donald Trump urged Republican legislators to trigger the first-ever US debt default by refusing to lift the limit if Democrats do not agree to spending cuts.

President Joe Biden has also threatened to call off his trip to Asia, including in-person attendance at next weekend's Group of Seven summit, if the deepening standoff is not resolved soon.

"In my assessment -- and that of economists across the board -- a default on US obligations would produce an economic and financial catastrophe," Yellen said in a speech.

"Short of a default, brinkmanship over the debt limit can also impose serious economic costs," she added as a three-day meeting of finance ministers and central bank chiefs began in the city of Niigata.

The lifting of the so-called debt ceiling -- a limit on government borrowing to pay for bills already incurred -- is often routine.

But budget-minded Republicans, who won control of the House of Representatives in 2022, have vowed to only raise the limit from its current $31.4 trillion maximum if spending curbs are enacted.

Last week, Yellen warned that the United States could run out of money to meet its financial obligations as early as June 1.

On Thursday, she recalled a similar impasse in 2011, which resulted in the United States losing its coveted AAA debt rating.

A high-stakes meeting between Biden and key lawmakers from both parties on Tuesday yielded no breakthrough, but the group agreed to keep trying to avert a default.

But on Wednesday, Trump -- a frontrunner for the 2024 Republican presidential nomination -- urged otherwise during a live broadcast on CNN.

"Republicans out there, congressmen, senators, if they don't give you massive cuts, you're gonna have to do a default," he said.

When asked about Trump's comments, Yellen said "America should never default" because "it would be tremendously economically and financially damaging".

"The notion of defaulting on our debt is something that would so badly undermine the US and global economy that I think it should be regarded by everyone as unthinkable," she said.

"I'm very hopeful that the differences can be bridged and the debt ceiling will be raised."

O.Lorenz--BTB