G7 financial leaders have convened in Japan to tackle one of the most serious global economic threats – the US debt ceiling stand-off. US Treasury Secretary Janet Yellen remarked that preventing a default should be of the utmost priority. “A default would be a catastrophe,” Yellen stated, “and America should never default.” Any potential debt crisis could lead to the government not being able to provide teachers, medical care, and benefits for citizens. Yellen is also looking to reassure her counterparts on the recent bank failures, which have caused concern worldwide.
The G7 meeting precedes the summit in Hiroshima later this month. US President Joe Biden said he and congressional leaders had a “productive” meeting regarding the debt limit, and they will meet again on Friday in an effort to avert the possibility of default. Biden was confident in the country’s ability to avoid a default, and noted that the US not meeting its obligations is not an option. Yellen, who will join Biden on the trip to Japan, Australia, and Papua New Guinea, said that the G7’s focus is on strengthening the global financial system and supporting Ukraine.
The US Federal Reserve also reported that banks tightened their lending standards for business and consumer loans, following the three large bank failures. These failures were a result of the Fed’s interest rate hike to combat inflation. An increase in rates can slow down lending and borrowing to an extent, which can cause the economy to suffer. Banks further restricting loans could make it even harder for businesses and individuals to access credit.
The G7 includes Canada, France, Germany, Italy, Japan, the United Kingdom and the United States. In addition to these countries, Brazil, Comoros, India, Indonesia, South Korea, and Singapore are also invited to the meeting in Niigata. The G7 finance ministers and central bank governors will meet over the next three days to discuss the issues at hand and work towards a resolution.
