On Monday, Treasury Secretary Janet Yellen informed Congress that if lawmakers do not increase or suspend the country's statutory borrowing ability by June 1, the United States might begin to default on its debt.
Yellen asked legislative leaders in a letter to the heads of the House and Senate “to protect the full faith and credit of the United States by acting as soon as possible” to resolve the $31.4 trillion ceiling on the country's permitted borrowing capacity. She continued by saying that it is hard to know with absolute precision when the United States would run out of money.
“We have learned from past debt limit impasses that waiting until the very 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 wrote in the letter.
The Congressional Budget Office said on Monday that there was a higher chance that the United States will run out of money in early June. The CBO Director Phillip L. Swagel said that the Treasury's exceptional measures “will be exhausted sooner than we previously projected” due to lower-than-anticipated tax collections this filing season and a quicker IRS processing already received returns.
In a letter to congressional leaders in January, Yellen said that her agency had started taking “extraordinary measures” to prevent a federal budget default.
Even though the federal government is on the verge of exceeding the debt ceiling, the Treasury said Monday that it intends to boost borrowing during the quarter from April to June of this year.
The United States intends to borrow $726 billion this quarter. Due to a lower beginning-of-quarter cash position and forecasts of lower-than-expected income tax collections and more expenditure, this is $449 billion more than anticipated in January.
The fight over the debt limit, according to Treasury officials, presents the biggest danger to the U.S. financial situation, even while Russia's invasion of Ukraine continues to hamper American economic development.
“Even if Congress ultimately raises the debt limit before a default occurs,” said Eric Van Nostrand, acting assistant secretary for economy policy, in a statement. “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 predicts the X-date, or the period when the government runs out of exceptional measures. In the next days, his firm will also provide an updated X-date estimate, he claims.
“The United States government is once again only months or even weeks away from failing to fulfill all of its responsibilities. That is not a stance appropriate for a nation regarded as the foundation of the financial system, and it only makes an already unstable economy more uncertain.
Congress should raise the debt ceiling, according to Democrats and the White House. President Joe Biden seeks a unilateral increase in the limit. The most recent measure to achieve expenditure reductions in return for an increase in the debt ceiling was approved by the majority of House Republicans.
At the Cap-to-Cap policy conference last week in Washington, Yellen said, “Congress must vote to raise or suspend the debt limit, and it should do so without conditions and without waiting until the last minute. To do this, in my opinion, is a fundamental duty of our government.