US Secretary of the Treasury Janet Yellen on Monday notified Congress that the US could default on its debt as early as June 1, if legislators do not raise or suspend the nation’s borrowing authority before then and avert what could potentially become a global financial crisis.
In a letter to House of Representatives and Senate leaders, Yellen urged them “to protect the full faith and credit of the United States by acting as soon as possible” to address the US$31.4 trillion limit on its legal borrowing authority.
She added that it is impossible to predict with certainty the exact date of when the US would run out of cash.
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“We have learned from past debt limit impasses that waiting until the last minute to suspend or increase the debt limit can cause serious harm to business and consumer confidence, raise short-term borrowing costs for taxpayers, and negatively impact the credit rating of the United States,” Yellen said in the letter.
Also on Monday, the Congressional Budget Office reported that it saw a greater risk of the US running out of funds early next month.
Congressional Budget Office Director Phillip Swagel said because of less-than-expected tax receipts this filing season and a faster Internal Revenue Service having processed already received returns, “Treasury’s extraordinary measures will be exhausted sooner than we previously projected.”
Yellen in January sent a letter to congressional leaders, stating that her department had begun resorting to “extraordinary measures” to avoid a federal government default.
The US Department of the Treasury on Monday said that it plans to increase its borrowing during the second quarter of this year, even as the federal government is close to breaching the debt limit.
The US plans to borrow US$726 billion during the quarter. That is US$449 billion more than projected in January, due to a lower beginning-of-quarter cash balance and projections of lower-than-expected income tax receipts and higher spending.
While Russia’s invasion of Ukraine remains a burden on US economic growth, officials say the debate over the debt ceiling poses the greatest risk to the US financial position.
Acting US Assistant Secretary for Economy Policy Eric Van Nostrand said in a statement that “even if Congress ultimately raises the debt limit before a default occurs, the ensuing uncertainty could raise borrowing costs and induce other financial stress that would weaken our labor market and our standing in the world.”
“There is no time to waste,” said Shai Akabas, director of economic policy at the Bipartisan Policy Center, which forecasts the so-called “X-date” when the US government exhausts its extraordinary measures.
His organization would provide an updated X-date projection in the coming days, Akabas said.
“The US government is again within mere months or even weeks of failing to make good on all its obligations. That is not a position befitting of a country considered the bedrock of the financial system, and only adds uncertainty to an already shaky economy,” he said.
Democrats and the White House are pushing for the US Congress to increase the federal debt limit.
US President Joe Biden wants the cap raised without negotiation. The House Republican majority has passed a bill to secure spending cuts in exchange for a debt limit increase.
Biden on Monday invited the four Congressional leaders to the White House on Tuesday next week to discuss the matter.
Yellen last week said at the Cap-to-Cap policy conference in Washington: “Congress must vote to raise or suspend the debt limit, and it should do so without conditions and it should not wait until the last minute. I believe that is a basic responsibility of our nation’s leaders to get this done.”
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