As policymakers argue over raising the debt ceiling, Treasury Secretary Janet Yellen warned on Monday that the United States could run out of money to meet its financial obligations as early as the beginning of June, risking a catastrophic default.
The national borrowing ceiling was raised last week by the Republican-led House of Representatives, but only with significant cuts as they sought a confrontation with Democratic President Joe Biden over what they viewed as excessive spending.
Republicans were adamant about getting the Limit, Save, Grow Act passed in the lower house of Congress in order to bolster their negotiating position with Vice President Biden, who has steadfastly refused to accept budget cutbacks. However, the act has no chance of passing because Democrats, who control the Senate and the White House, are opposed to it.
The deadlock has increased the likelihood that Congress and the White House will preside over the country’s first default on its debt.
“Our best estimate is that we will be unable to continue to satisfy all of the government’s obligations by early June, and potentially as early as June 1, if Congress does not raise or suspend the debt limit before that time,” said Yellen on Monday, in a letter addressed to House Speaker Kevin McCarthy and other leaders.
While the United States hit its $31.4 trillion borrowing limit in January, the Treasury has taken extraordinary measures that allow it to continue financing the government’s activities.
But if the debt ceiling is not raised or suspended before current tools are exhausted, the government risks defaulting on payment obligations, with profound implications for the economy.
“Given the current projections, it is imperative that Congress act as soon as possible to increase or suspend the debt limit in a way that provides longer-term certainty that the government will continue to make its payments,” Yellen said.
Biden-McCarthy talks
The White House said late Monday that Biden called McCarthy that afternoon to invite him to a meeting on May 9 with the other chief Republican and Democratic leaders of Congress.
A source familiar with negotiations told AFP that Biden spoke Monday with McCarthy on extending the national debt and avoiding a default.
As head of the narrow Republican majority in the House, McCarthy has primary control over US budget issues.
In a statement late Monday, McCarthy appeared unbowed, accusing Biden of “threatening to bumble our nation into its first ever default.” He called on the president and the Senate “to get to work — and soon” to accept spending cuts and avert the crisis.
In an earlier letter, Yellen said it was unlikely that cash and extraordinary measures would run out before early June.
She added Monday that the latest expectations are based on current available data and noted that the actual date when the Treasury exhausts its measures could be “a number of weeks later” from the early June estimate.
‘Significantly greater risk’
“Because tax receipts through April have been less than the Congressional Budget Office anticipated in February, we now estimate that there is a significantly greater risk that the Treasury will run out of funds in early June,” said CBO director Phillip Swagel in a separate statement on Monday.
In an earlier report, the CBO projected that extraordinary measures would likely be exhausted between July and September, although it also acknowledged uncertainty in its expectations.
“House Republicans are running out of time to avert an economic catastrophe of their own making,” said Brendan Boyle, top Democrat on the House Budget Committee.
“Today’s update from the Treasury Department needs to be a wakeup call for Speaker McCarthy,” he added, saying that the Speaker has “wasted enough of the House’s time” appeasing his extreme allies.
But House Republicans, in a tweet after the Treasury’s announcement, doubled down on the need to “limit Washington spending.”
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from US may risk catastrophic debt default 'as early as June 1', says Treasury Secretary Janet Yellen
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