The deadlock in Washington over raising the debt ceiling was discussed at a meeting of G7 finance ministers that began on Thursday amid growing fears of a possible recession in the United States.
The governor of the Japanese central bank said that in the event of a US debt crisis, the group should be ready to react to any market involvement.
“I think the US authorities will do everything possible to prevent this from happening,” Kazuo Ueda told reporters on Thursday when asked about the possibility of the United States defaulting on its debts. “The immediate consequences will have to be dealt with by the American authorities. But (the G7 group) will probably take a closer look…and react if necessary.”
Treasury Secretary Janet Yellen is expected to answer questions from her G7 colleagues meeting in the Japanese city of Niigata on how Washington intends to forestall turmoil in already turbulent financial markets following the recent collapse of three US regional banks.
“A default would jeopardize the gains we have worked so hard for over the past few years to recover from the pandemic. And that will trigger a global recession that will set us back even further,” Yellen said Thursday in Niigata.
President Joe Biden has signaled he could cancel his trip to the G7 summit next week if the debt ceiling issue is not resolved in time, warning that a failure to quickly raise the government’s borrowing limit government from the current $31.4 trillion could push the US economy into recession. .
The debt crisis in the United States will be a big problem for Japan, which chairs the G7 this year and is the largest holder of American debt in the world.
The meeting of G7 finance ministers comes at a time when monetary tightening in the United States and Europe is beginning to weigh on global growth and heighten fears of financial instability.
Rising tensions between the United States and China and signs of a weakening Chinese economy are also clouding the outlook for the global economy.
Yellen told a news conference that Washington was considering imposing restrictions on investment in China to counter its “economic coercion” toward other countries.
The United States hopes to discuss the idea with its G7 allies at a meeting this week, she added.
Other key topics to be discussed at the G7 meeting include measures to prevent Russia from evading sanctions, as well as diversifying supply chains through partnerships with low- and middle-income countries to reduce dependence on China.
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