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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.
(Reporting by David Lawder; Editing by Paul Simao and Josie Kao)
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