WASHINGTON: The US Treasury Department said on Monday that it expects the US government would be able to pay limited government bills by June 1 without a debt ceiling increase but the default risk continues to hover.
Treasury Secretary Janet Yellen acknowledged in her second letter to Congress that it was doubtful the Treasury would fulfil all US government payment commitments by early June, leading to the first-ever US default. By June 1, she warned, the debt cap may become legally obligatory.
The Treasury secretary is putting pressure on congressional Republicans and the White House to come to an agreement soon
The updated date takes into account further information on receipts of income and payments since Yellen informed Congress on May 1 that Treasury would probably run out of money to pay for its obligations in early June, maybe as early as June 1.
It also comes a day before House Speaker Kevin McCarthy and US President Joe Biden are scheduled to meet for negotiations, as well as before the president’s next abroad tour, which begins on Wednesday.
On Wednesday, Biden will go to Japan for a summit of the Group of Seven leaders before continuing on to Australia for nearly a week. McCarthy said on Monday that the prolonged staff-level negotiations over the weekend had not advanced.
A “constitutional crisis” and a “economic and financial catastrophe” for the American and world economies, according to Yellen, might result from Congress’s failure to increase the $31.4 trillion federal debt ceiling.
With payment operations unclear throughout May, the nonpartisan Congressional Budget Office last week warned that the United States faced a “significant risk” of missing payments within the first two weeks of June in the absence of an increase in the debt ceiling. According to some experts, such as the Congressional Budget Office, Treasury might avoid a default for as late as August provided it has access to quarterly tax payments due on June 15 and additional borrowing options that become available on June 30
In her letter on Monday, Yellen encouraged swift action. “We have discovered from past debt limit impasse that waiting until the last minute to suspend or boost the debt limit can cause serious damage to business and consumer confidence, raise short-term borrowing costs for taxpayers, and adversely affect the credit rating of the United States,” said Yellen. She said that the borrowing rates for the Treasury had already significantly increased for assets expiring in early June.
She stated that failing to extend the debt ceiling would be extremely difficult for American families, damage our nation’s standing as a global leader, and cast doubt on our capacity to protect our national security interests.
