The United States could run out of funds to pay its debt obligations — triggering a catastrophic default — as early as the start of June, Treasury Secretary Janet Yellen said Monday, as policymakers tussle over raising the debt ceiling.
Last week, the Republican-led House of Representatives voted to lift the national borrowing limit, but only with drastic cuts as they sought a showdown with President Joe Biden, a Democrat, over what they see as excessive spending.
But Biden has refused to agree to spending cuts to get the debt cap increased.
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.
If the debt ceiling is not raised or suspended by Congress before current tools are exhausted, the government risks defaulting on payment obligations, with profound implications for the economy.
“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 in a letter addressed to House Speaker Kevin McCarthy and other leaders.
“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,” she said.
In an earlier letter, Yellen said it was unlikely that cash and extraordinary measures would run out before early June.
In her update on Monday, she said the latest estimate is based on current available data and noted that the actual date when 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.”
