Yellen warns of debt ceiling “catastrophe” for U.S. and beyond

Treasury Secretary Janet Yellen told Axios she is “nervous” about the U.S. defaulting on its debt and cautioned that Americans likely will face a scary and spiraling recession if Congress doesn’t raise the debt ceiling this summer.

“Of course, it makes me nervous,” Yellen told Axios from Johannesburg, South Africa, at the end of a 10-day trip across the continent. “It would be devastating. It’s a catastrophe.”

In the event of a default “we’ll have a financial crisis,” she said. “And I believe we would have recession in the United States.”

If the government were unable to issue new debt, the economy would go into a tailspin. “Spending would have to decline to match the tax revenues,” Yellen said, depriving the government of any ability to juice the economy with stimulus.

Then fear might run loose, making consumers too scared to spend — a scenario Yellen called “psychological consequences” that “could further impact spending and deepen a recession.”