Yellen: U.S. faces 'widespread suffering' if debt limit not raised

Treasury Secretary Janet Yellen on Tuesday warned of "widespread suffering" and a potential stock market crash if Washington fails to raise the government's borrowing authority in the coming weeks.

Yellen told a banking conference that a situation where the U.S. runs out of cash to pay its bills and defaults on its debt "would generate an economic and financial catastrophe." She said millions of Americans who rely on payments from the federal government would likely go unpaid, ranging from 66 million Social Security beneficiaries to millions of veterans and military families.

She said the ensuing economic crisis would be exacerbated by disruptions to the federal government's operations, citing potential impacts on air traffic control and law enforcement. A number of financial markets would break, she added.

Yellen has told lawmakers that the U.S. could run out of cash to cover its obligations as soon as June 1.

"A default could cause widespread suffering as Americans lose the income that they need to get by," she told the Independent Community Bankers of America conference in Washington. "And the resulting income shock could lead to a recession that destroys many American jobs and businesses."

Yellen's remarks were an escalation of her warnings about the consequences of the U.S. failing to raise the debt limit. She ratcheted up her rhetoric as congressional leaders and President Joe Biden struggle to reach a compromise on a path forward.

In the event of a protracted U.S. default, Yellen said a simulation by the White House Council of Economic Advisers found that more than 8 million Americans would lose their jobs and the value of the stock market would be slashed by about 45 percent.

"If that sounds catastrophic — that’s because it is," she said.