US could run out of cash by June 1, Yellen warns
By Alan Rappeport and Jim Tankersley
Treasury Secretary Janet Yellen said earlier this week 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 Joe Biden and lawmakers to reach a swift agreement to avoid defaulting on the nation’s debt.
The more precise warning over when the United States could hit the so-called X-date dramatically reduces the projected amount of time lawmakers have to reach a deal before the government runs out of money to pay all of its bills on time. The new timeline could accelerate negotiations among the House, Senate and Biden over government spending — or a high-stakes standoff between Biden and the House Republicans who have refused to raise the limit without deep spending cuts attached.
In response to Yellen’s new timeline, Biden on Monday called the top four leaders in Congress to ask for a meeting May 9 to discuss fiscal issues. Biden reached out to Speaker Kevin McCarthy, R-Calif., and Rep. Hakeem Jeffries, D-N.Y., the minority leader, along with Sen. Chuck Schumer, D-N.Y., the majority leader, and Sen. Mitch McConnell, R-Ky., the minority leader.
Economists have warned that failure to raise the debt limit, which caps the total amount of money the United States can borrow, threatens to rock financial markets and throw the global economy into a financial crisis.
Because the United States runs a budget deficit — meaning it spends more money than it takes in — it must borrow huge sums of money to pay its bills. In addition to paying Social Security benefits, along with salaries for the military and government workers, the United States is also required to make interest and other payments to the bondholders who own its debt.
The Treasury Department had previously projected that it could run out of cash sometime in early June, but the new estimate raises the alarming prospect that the United States could be unable to make some payments, including to bondholders, in a matter of weeks.
“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,” Yellen said in a letter to Congress.
The Congressional Budget Office also warned Monday that time was running out more quickly than previously thought. The nonpartisan budget office said tax receipts from income payments that were processed in April were smaller than it had anticipated and that future tax payments were unlikely to have much impact.
“That, in combination with less-than-expected receipts through April, means that the Treasury’s extraordinary measures will be exhausted sooner than we previously projected,” CBO Director Phillip Swagel wrote in an analysis posted on the agency’s website.
White House officials had not expected the date of possible default to arrive so soon, and the accelerated timetable could scramble Biden’s approach to the potential crisis.
Biden has continued to insist he will not negotiate directly over the limit, saying Congress must raise the cap without conditions.
House Republicans passed legislation in April that would raise the debt limit in exchange for deep spending cuts and roll back recent climate legislation that Democrats passed along party lines. Biden has blasted that bill, saying it would hurt working families while benefiting the oil and gas industry, and he has accused Republicans of putting America’s economy on the line.
On Monday, Biden called on Republicans “to make sure the threat by the Speaker of the House to default on the national debt is off the table.”
“For over 200 years, America has never, ever, ever failed to pay its debt. To put in the capital — in colloquial terms, America is not a deadbeat nation. We have never, ever failed to meet the debt,” Biden said.
Republican Senators reacted to the news Monday by emphasizing the onus was now on Biden to negotiate to avoid economic calamity.
“It is very scary,” Sen. Joni Ernst, R-Iowa, and a member of GOP leadership said of the looming crisis. “President Biden needs to step it up and get to the table. Kevin McCarthy and the folks in the house, they did their part.”
Some expressed optimism that the approaching deadline would force action.
“Washington’s at its best when it has a deadline to respond to,” said Sen. Thom Tillis, R-N.C.
Schumer and Jeffries urged Republicans to lift the limit immediately with no strings attached. “We do not have the luxury of waiting until June 1 to come together, pass a clean bill to avoid a default and prevent catastrophic consequences for our economy and millions of American families,” the lawmakers wrote in a joint statement Monday.
Although markets have broadly remained calm about the prospect of a default, there are some signs that investors are becoming nervous.
They have sold government bonds that mature in three months — around the time policymakers have said the United States could run out of cash — and snapped up bonds with just one month until they are repaid.
In a separate report issued by the Treasury Department on Monday about the risks facing the economy, Eric Van Nostrand, the acting assistant secretary for economic policy, laid out the dire consequences of failing to raise the debt limit.
“A default by the U.S. government — including the failure to pay any of the United States’ obligations — would be an economic catastrophe, sparking a global downturn of unknown but substantial severity,” Van Nostrand said.