US Treasury Secretary Janet Yellen has warned that the USA may run out of cash by 1 June if Congress fails to raise or suspend the debt ceiling.
Reaching the debt ceiling means that the US government is unable to borrow any more money.
On Monday, Treasure Secretary Ms. Yellen urged Congress to act “as soon as possible” to address the $31.4tr (£25.12tr) limit.
President Joe Biden has called a meeting of congressional leaders on the issue on 9 May. The debt ceiling has been raised, extended or revised 78 times since 1960.
In this instance, House Republicans have demanded drastic spending cuts and a reversal of some aspects of President Biden’s agenda – including his student loan forgiveness programme and green energy tax credits – in exchange for votes to raise the debt ceiling. This, in turn, has prompted objections from Democrats in the Senate and from President Biden, who said last week that the issue is “not negotiable”.
The president, however, is under increasing pressure from business groups – including the US Chamber of Congress – to discuss Republican proposals.
A default – which would be the first in US history – could upend global financial markets and shatter trust in the US as a global business partner.
Experts warned that a default could also see the US head into a recession and lead to rising unemployment.
It would also mean that the US would be unable to borrow money to pay the salaries of government employees and military personnel, social security cheques or for other obligations, such as defence contractor payments.
Even weather forecasts could ultimately be impacted, as many rely on data from the federally-funded National Weather Service.
In a letter to members of Congress on Tuesday, Treasure Secretary Ms. Yellen said that “We have learned from past debt limit impasses that waiting until the 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.”
Ms. Yellen added that it is impossible to know for sure when exactly the US will run out of cash.
Treasure Secretary announcement came on the same day as the Congressional Budget Office (CBO) reported that there is a “significantly greater risk that the Treasury will run out of funds in early June”.
Treasure Secretary said that the Treasury Department had begun “extraordinary measures” to avoid a government default.