US Treasury Secretary Janet Yellen has raised the alarm that the US could effectively have no cash left to pay its bills by 1 June if the debt ceiling remains unchanged — it needs to be either suspended or raised by Congress.
Yellen said in a letter to Congress that it would be unlikely for the agency to meet all US government payment obligations “potentially as early as June 1” without action by Congress.
The US federal government has maxed out the current debt limit of $31.4 trillion, so it has no room to borrow under its standard operating procedures, other than to replace maturing debt
The debt ceiling or debt limit is a legislative limit on the amount of national debt that can be incurred by the US Treasury, thus limiting how much money the federal government may pay on the debt it already borrowed by borrowing more money.
Yellen has called on Congress to spin into action without wasting any time to address the $31.4 trillion limit issue.
President Joe Biden summoned the four top congressional leaders to the White House next week after the Treasury warned the government could run short of cash to pay its bills by June.
It must be noted that the debt ceiling has been raised, extended or revised 78 times since 1960.
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.
Republicans were determined to muscle the Limit, Save, Grow Act through the lower chamber of Congress to strengthen their position in negotiations with Biden, who has refused to agree to cut spending. But the act has no chance of becoming law as it is opposed by Democrats controlling the Senate and White House.
They are also seeking the withdrawal of some populist concessions including President Biden’s student loan write-offs scheme and green energy tax credits – against their support in the House to raise the debt ceiling.
This proposal did not go down well with the Democrats in the Senate and President Biden, who are sticking to their stance of “these issues are non-negotiable".
The impasse has raised the possibility of Congress and the White House overseeing the first national debt default.
"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.