US refers to bulls, be careful! Yellen said that if the debt ceiling is not resolved within two weeks, the U.S. economy will fall into recession

On October 5, local time, U.S. Treasury Secretary Yellen stated that if the U.S. Congress fails to resolve the debt ceiling issue within two weeks, the U.S. economy will fall into recession. She also warned that a default by the US government debt would be "catastrophic," which could lead to economic recession and put the dollar's reserve status at risk. However, judging from the current situation, the two parties in the United States are still deadlocked over the debt issue.

Yellen warns: If the debt ceiling is not resolved within two weeks, the US economy will fall into recession

Yellen said she still believes that October 18 is the deadline for raising the debt ceiling. At that time, the Ministry of Finance will exhaust its borrowing capacity and its limited cash reserves will soon be consumed.

US President Biden called on Congress on Monday to raise the debt ceiling this week to avoid almost certain economic turmoil. He accused the Republican and Senate Minority Leader McConnell of obstructing legislation to increase the borrowing ceiling by obstructing the proceedings.

Yellen said: "I fully expect this will also lead to a recession."

For several weeks, President Yellen has been warning the Speaker of the House of Representatives, Pelosi, a California Democrat, and Schumer, a New York State Democrat, the majority leader of the Senate, that the United States will not be able to repay its debts around October 18. Members of Congress must raise or suspend the debt ceiling before this date, otherwise the United States will face the risk of defaulting for the first time in history.

Failure to take action may also prompt some countries to reduce their holdings of U.S. Treasury bonds and weaken demand for the U.S. dollar, which may give other currencies the upper hand in their efforts to replace the U.S. dollar as the world's preferred currency.

Yellen said: "For a long time, U.S. Treasury bonds have been regarded as the safest assets on the planet. This explains to a certain extent the reserve status of the U.S. dollar. If we cannot pay any bills that are due, it will be catastrophic. result."

The two parties in the U.S. remain deadlocked over the debt issue

U.S. congressmen from both parties recognize that the debt ceiling must be raised, otherwise they will face the risk of economic turmoil. But as of the morning of October 5th, local time, the two sides seemed far from reaching a compromise.

The difference between the Republicans and the Democrats is how to raise the debt ceiling, and both parties regard this issue as a politically tough method. Republicans think that the Democrats’ spending plans are too large, and they have had enough. They said that Biden, Pelosi, and Schumer should address this issue individually and suspend their trillion-dollar social policy and climate bills. The bill allows a political party to pass certain bills in the Senate with a simple majority instead of the usual 60 votes, which makes it free from Republican obstruction. McConnell made it clear that before the 2022 midterm elections, no one of his party members will support efforts to raise the ceiling.

According to US media reports, if the debt ceiling cannot be raised in time, the payments millions of Americans rely on will be stopped, including federal workers’ salaries, medical insurance benefits, military salaries, tax rebates, social security payments (pension insurance) and Payments to federal government contractors will result in unemployment and even tens of billions of new crown pneumonia economic recovery aid funds that have yet to be spent. The credit market will face a freeze, and the US GDP may be affected for multiple quarters. Blow.

Based on the above information, it can be seen that if the United States does not raise the debt ceiling, the probability of the economy falling into recession is high. President Biden and Treasury Secretary Yellen both issued warnings. Raising the debt ceiling in the United States means that there will be no debt default, which means that the credit of the dollar will not collapse, which is good for the U.S. dollar index. If the debt ceiling cannot be raised, it will be negative for the U.S. dollar index. Investors need to pay attention to the attitudes of the two parties on this issue in the future.



Daily chart of the dollar index

At 09:41 on October 6, GMT+8, the US dollar index was at 94.06.