Treasury Secretary Janet L. Yellen on Friday said the United States will run out of money to pay its bills on time by June 5th, pushing back the target points slightly while maintaining congressional leaders’ urgency for a deal to raise or suspend the debt limit.
The letter provided the most accurate date yet for when cash is expected to run out in the United States. Ms Yellen had previously said the US could hit its so-called X-date – the moment when it doesn’t have enough money to pay all its bills on time – as early as June 1.
While the letter to lawmakers offers a little wiggle room, it also illustrates the dire financial situation the Treasury Department faces. The federal government is required to make more than $130 billion in scheduled payments during the first two days of June — including money for veterans and Social Security and Medicare beneficiaries.
These payments would leave the Treasury with “an extremely low level of resources”. Ms. Yellen went on to detail the billions of dollars in required cash transfers, expenditures and investments in programs like Social Security and Medicare credit funds that will further drain her cash reserves.
“Our projected resources will not be sufficient to meet all of these obligations,” Ms. Yellen wrote.
Ms. Yellen’s message comes as the White House and Republicans race to reach a deal that would raise the state’s $31.4 trillion borrowing cap and prevent the United States from defaulting on its debt. The Treasury Department reached the legal debt limit on January 19, and has been using accounting maneuvers — known as “extraordinary measures” — to ensure that the United States continues to pay its bills on time because it cannot increase the country’s debt burden.
Rep. Patrick McHenry, R-North Carolina and a key player in the talks, said the more accurate Treasury Department date “puts additional pressure on us.”
Even before the letter was sent, Mr. McHenry said he was aware of the lack of time left to prevent default.
“We have to be in closing hours because of the schedule,” he said. “I don’t know if it’s the next day, two days, or the third, but it has to come together.”
For months, Yellen has been warning lawmakers that the US may run out of cash to pay all of its bills on time in early June.
Ms. Yellen said earlier this week that she would try to include more accuracy in her future updates about when a default might occur. Some House Republicans have expressed doubts that a default may be approaching so quickly, and have called on the Treasury Secretary to appear before Congress and provide her full analysis.
Earlier this week, members of the House Freedom Caucus, a group of conservative Republicans, wrote a letter to House Speaker Kevin McCarthy, R-Calif., urging party leaders to demand that Yellen “provide full justification” for her expectation that the US States could run out of cash as soon as June 1. They accused Ms. Yellen of “manipulative timing” and suggested not trusting her predictions because she was wrong about how hot inflation was.
Other independent analyzes have also identified early June as the most likely moment when the United States reaches the tenth date. The bipartisan Center for Politics said earlier this week that the United States faces an “elevated risk” of running out of cash to pay its bills between June 2 and June 13 if Congress does not raise or suspend the country’s debt limit.
While negotiators have been talking around the clock, no deal has been announced yet. However, features of an agreement between the White House and the Republicans are taking shape. This deal would raise the debt limit for two years while imposing strict limits on discretionary spending not related to the military or veterans for the same period.
While officials negotiated, the federal government was running on fumes. The Treasury Department’s cash balance fell to $38.8 billion on Thursday, with the United States close to running out of cash to pay its financial obligations.
Biden administration officials continued to play down the possibility that the Treasury Department could avoid a default beyond Date X by prioritizing payments to bondholders. They also rejected provocative steps such as invoking the Fourteenth Amendment as a way to continue borrowing and instead reiterated calls for Congress to raise the debt limit.
“Congress has the power to do this, and the President calls on them to work on that as quickly as possible,” Deputy Treasury Secretary Wali Ademo told CNN on Friday.
In her letter, Ms. Yellen also explained additional accounting maneuvers known as “extraordinary measures” that she was taking to delay defaults until June 5th. The measures included moving $2 billion in Treasury bonds between the Civil Service Retirement and Disability Fund. and Federal Finance Bank.
“The extremely low level of remaining resources required me to exhaust all available extraordinary measures to avoid being unable to meet all of the government’s obligations,” wrote Ms. Yellen.
Financial markets are becoming more nervous as the United States approaches its deadline to avoid a possible default. This week, Fitch Ratings said it was putting the country’s top AAA credit rating under review for a possible downgrade. DBRS Morningstar, another ratings firm, did the same on Thursday.
Ms. Yellen noted in her letter that the standoff is already stressing financial markets.
“We have learned from previous debt limit impasses that waiting until the last minute to suspend or increase a debt limit can cause serious harm to business and consumer confidence, raise short-term borrowing costs for taxpayers, and negatively affect the credit rating of the United States,” she wrote.
Luke Broadwater Contribute to the preparation of reports.