In a speech delivered on Monday, May 1, Treasury Secretary Janet Yellen warned that the United States could default on its debt by June 1 if Congress does not act to raise or suspend the debt limit. The debt limit is the maximum amount of money that the federal government is authorized to borrow to pay for its obligations, such as Social Security and Medicare benefits, military salaries, and interest on the national debt.
The Debt Limit: What It Is and How It Works
The current debt limit is $28.4 trillion, and it was reinstated on August 1, 2019, after a two-year suspension. Since then, the Treasury Department has been using so-called extraordinary measures to avoid breaching the limit, but those measures are projected to run out in the coming weeks.
“Based on our best and most recent information, the most likely outcome is that cash and extraordinary measures will be exhausted during the month of October,” Yellen wrote in a letter to Congress last week. “At that point, Treasury would be left with very limited resources that would be depleted quickly.”
Yellen’s Urgent Call to Action: Why a Default Would Be Unthinkable
Yellen’s warning that the United States could default on its debt by June 1 comes amid a partisan standoff in Congress over raising the debt limit. Republicans have argued that Democrats should use the reconciliation process, which allows for a simple majority vote in the Senate, to pass a debt limit increase or suspension without Republican support.
In her speech on Monday, Yellen urged Congress to act quickly to raise or suspend the debt limit, saying that a default would be “unthinkable” and could have dire consequences for the economy and the global financial system hence the United States could default on its debt by June 1.
The Need for Republican Support
“A delay that calls into question the full faith and credit of the United States would be harmful to our economy and to working families and should be avoided,” Yellen said. She further added, “The vast majority of our debt is held by domestic investors and the federal government has never defaulted on its debt. But the stakes are too high to take any chances and Congress should act as soon as possible.”
Yellen also noted that a default would make it more expensive for the government to borrow money in the future, potentially leading to higher interest rates for consumers and businesses.
While Democrats have a narrow majority in both the House and the Senate, they would need some Republican support in the Senate to pass a debt limit increase or suspension, as the filibuster requires 60 votes to overcome. Senate Minority Leader Mitch McConnell has said that Republicans will not provide any votes to raise the debt limit, arguing that Democrats should use reconciliation.
The Deadline Looms: What Will Happen If Congress Does Not Act by June 1?
Democrats, however, have said that reconciliation would take too long and would not provide the certainty and stability that the financial markets need. They have also pointed out that Republicans raised the debt limit three times during the Trump administration without any conditions or offsets.
If Congress does not act to raise or suspend the debt limit by June 1, the Treasury Department will be forced to prioritize payments, meaning that some bills may go unpaid. That could include payments to Social Security and Medicare beneficiaries, as well as payments to contractors and suppliers.
In conclusion, Treasury Secretary Janet Yellen has issued a stark warning that the United States could default on its debt by June 1 if Congress does not act to raise or suspend the debt limit. Yellen has urged Congress to act quickly, saying that a default would be “unthinkable” and could have dire consequences for the economy and the global financial system. She has stressed that the Treasury Department has limited tools to avoid default and that delaying action could have serious consequences.
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