The United States is already paying the consequences of the debt crisis, warns Yellen

The United States is already feeling the concrete effects of the political crisis of the debt ceiling, according to Treasury Secretary Janet Yellen, who cites in particular the increase in the cost of borrowing for the American government.

“Investors have become more reluctant to hold sovereign debt that matures in June,” said the finance minister in a speech she is due to deliver on Tuesday to the Local American Bankers Association (ICBA) and whose Treasury published excerpts in advance.

The interest rate on one-month US Treasury bills thus rose to 5.74% on Monday, the highest for at least twenty years, against 3.29% in mid-April.

It is significantly higher than the key rate of the US central bank, located in a range between 5.00% and 5.25%, a rarity.

This surge in the rate reflects the fall in the price of these Treasury bonds, which moves in the opposite direction of the rate and has therefore fallen sharply. This situation forces the American government to borrow more expensively than under ordinary conditions.

Republican Speaker of the House of Representatives Kevin McCarthy and President Joe Biden during a meeting at the White House on May 9, 2023 (GETTY IMAGES NORTH AMERICA/AFP/Archives – Anna Moneymaker)

On Thursday, the US Treasury had to offer investors a yield of 5.50% for four-week Treasury bills, which will mature on June 13. However, according to the projections of the American government, a default of payment is envisaged as of June 1, for lack of raising of the ceiling of the debt, repeated Monday Janet Yellen.

This limit can only be increased by a majority vote in Congress. But as it stands, the Republicans in the House of Representatives refuse to raise the ceiling without compensation and a strict framework for public spending.

US President Joe Biden is due to meet with parliamentary opposition leaders, including Republican Speaker of the House of Representatives Kevin McCarthy, on Tuesday to try to find a compromise.

In addition to the increase in the cost of borrowing for the United States, “too many companies must spend time preparing for the hypothesis of a default” of the country on its debt, explains the Secretary of the Treasury in this speech . “And too many households have to worry about whether they will get by without the money promised to them by the government,” she adds.

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