Treasury Secretary Janet L. Yellen said Monday that the United States could run out of money to pay its bills by June 1 if Congress does not raise or suspend the debt limit, putting pressure on President Biden and lawmakers to reach an agreement on avoiding default.
The warning about when the United States will reach the so-called X-date provides new urgency for Democrats and Republicans to find a way to raise the country’s borrowing ceiling and break the confrontation that threatens financial markets and the volatility of the economy.
“Given current projections, it is imperative that Congress act as quickly as possible to increase or suspend the debt limit in a way that provides long-term certainty that the government will continue to make its payments,” Ms. Yellen said.
House Republicans passed legislation in April that would raise the debt limit in return for deep spending cuts, reversing recent legislation passed by Democrats along the lines of the party. Mr. Biden has criticized the law, saying it will harm working families while benefiting the oil and gas industry, and has accused Republicans of putting the US economy on the line.
However, with time running out and some moderate Democrats calling for restraint, Mr. Biden is expected to meet with House Speaker Kevin McCarthy, a California Republican, and other congressional leaders from both parties in the coming weeks.
The United States technically hit its $31.4 trillion debt limit in January, forcing the Treasury Department to use accounting maneuvers known as extraordinary measures to allow the government to continue paying its bills, including payments to bondholders who hold government debt. Yellen said at the time that her powers to delay a default – in which the United States fails to make payments on time – could be exhausted by early June. But she cautioned that the estimate came with a great deal of uncertainty.
Although he plans to meet with McCarthy, Biden has insisted that raising the debt limit is non-negotiable and has urged Republicans to do so without strings attached.
“The most important thing we need to do in this regard is make sure that the Speaker’s threat to default on the national debt is off the table,” Biden said in remarks at the White House on Monday. “For more than 200 years, America has never failed to pay its debt.”
A Treasury official said the government had a cash balance of about $300 billion at the end of April. Ms. Yellen’s ability to delay a default will depend in part on how much tax revenue comes into the federal government this spring.
Tax day payments still arrive. Economists at Goldman Sachs predicted last week that by the second week of June, the Treasury Department could have about $60 billion in cash remaining, which would allow the government to continue making payments through late July.
Some budget analysts have suggested that winter storms could complicate the Treasury’s ability to delay defaults. Severe storms, flooding and mudslides in California, Alabama and Georgia this year prompted the Internal Revenue Service to push back the April 18 filing deadline until October for dozens of counties.
The IRS also gave those affected districts more time to make contributions to health savings and retirement accounts, which could affect their taxable income.
And Ms. Yellen has already taken steps to make sure the federal government has enough cash on hand.
Earlier this year, it announced it would recoup some existing investments and halt new investments in the Civil Service Retirement and Disability Fund and the Postal Service Retiree Health Benefits Fund.
On Monday, Ms. Yellen said the Treasury Department was suspending issuance of state and local government Treasury bonds.
The debt-limit brinkmanship has revived debate about how far the executive can go to avoid default. However, Ms. Yellen rejected the idea that she could prioritize certain payments or mint a $1 trillion platinum coin to ensure the US remains solvent.
In a speech last week, Ms. Yellen warned that a default would have real consequences for the economy.
“Household payments on mortgages, auto loans and credit cards will go up,” Yellen said in remarks to the Sacramento Metropolitan Chamber of Commerce. American companies will see credit markets deteriorate.
“Moreover, it is highly unlikely that the federal government will be able to disburse payments to the millions of Americans, including our military families and seniors who depend on Social Security,” she added.