US at risk of debt default by June 1 if limit not raised: Yellen
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Yellen further warns that the US could run out of money.
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Treasury Secretary Janet Yellen at a news conference in Washington, US on December 13, 2017 (Reuters)
Treasury Secretary Janet Yellen warned on Monday that the US is threatened by a debt default as soon as the start of June, as lawmakers struggle over raising the borrowing limit.
In a letter to House Speaker Kevin McCarthy, Yellen said, "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."
Yellen also said the US could run out of money in case the debt limit is not raised. “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 further warned.
This follows after a Republican bill to increase the debt limit and cut down on government spending was passed last Wednesday after a narrow 217-215 vote in the US House of Representatives - a major win for McCarthy but seems to be a struggle at the moment.
McCarthy's proposal included raising the US debt limit by $1.5 trillion to avert a default of the world's biggest economy.
Read more: US debt default might trigger global financial crisis
🚨 BREAKING 🚨 House Republicans just passed the only plan in Washington that
— Kevin McCarthy (@SpeakerMcCarthy) April 26, 2023
1. Lifts the debt ceiling
2. Stops wasteful spending and inflation
3. Puts America back on track
Now Democrats should do their job.
Tune in for my press conference soon https://t.co/vmn31INPH5
Nearly half of the House Democrats have expressed fondness for McCarthy's initiative such that it presents a potential compromise between the two parties: inviting Biden to negotiate an agreeable decision with McCarthy.
Read next: McCarthy calls Biden 'irresponsible' for refusal to put state debt cap
However, Democrat Senators seem to disagree with their House counterparts. The upper chamber Democrats stand firm by the President's decision to accept no concessions on the debt-ceiling raise.
Yellen has been urging Congress to either suspend or raise the debt limit for the same reason as McCarthy, adding that her agency has started discussing "extraordinary measures" to avoid a default, which the US has never done since the debt ceiling has been raised 22 times between the years 1997 and 2022.​​​​​​​
Yellen warned on Tuesday that a US default on its debt would set off an "economic and financial catastrophe," stressing that Congress must not wait until the last minute to make a decision on the matter.
In January, after the US maxed out its borrowing limit at $31.46 trillion, the US Treasury announced launching "extraordinary measures" to prevent defaulting on debt. Yellen then decided that the Treasury would temporarily suspend payments that aren't urgent and divert the money for more pressing needs i.e. services needed to keep the government operating.
