WASHINGTON — Treasury Secretary Janet Yellen said Friday (May 26) that the United States will run out of money to pay its bills on time by June 5, moving the goal posts slightly while maintaining the urgency for congressional leaders to reach a deal to raise or suspend the debt limit.
The letter provided the most precise date yet for when the United States is expected to run out of cash. Yellen had previously said the nation could hit the so-called X-date — the moment when it does not have enough money to pay all of its bills on time — as soon as June 1.
Yellen’s letter comes as the White House and House Republicans have been racing to reach a deal that would lift the nation’s $31.4 trillion borrowing cap and prevent the US from defaulting on its debt. The Treasury Department hit its statutory debt limit Jan. 19 and has been employing accounting manoeuvres — known as “extraordinary measures” — to ensure the United States can continue paying its bills on time.
On Friday evening, President Joe Biden expressed hope that an agreement could soon be clinched. “Things are looking good. I’m very optimistic,” Biden said as he departed the White House for Camp David. “I’m hopeful we’ll know by tonight whether we are going to be able to have a deal.”
While Yellen’s letter to lawmakers provides a tiny bit of wiggle room, it also makes clear the dire financial situation that Treasury is facing. The federal government is required to make more than $130 billion in scheduled payments during the first two days of June — including money to veterans and Social Security and Medicare recipients.
Those payments will leave the Treasury Department with “an extremely low level of resources.” Yellen went on to detail billions of dollars of required cash transfers, expenditures and investments in programs such as the Social Security and Medicare trust funds that will further deplete its cash reserves.
“Our projected resources would be inadequate to satisfy all of these obligations,” Yellen wrote.
Rep. Patrick McHenry, R-N.C., who is a key player in the talks, said the Treasury Department’s more precise date “puts additional pressure on us.” Even before the letter was sent, McHenry said he was cognizant of how little time remained to prevent a default.
“We’ve got to be in the closing hours because of the timeline,” he said. “I don’t know if it’s in the next day or two or three, but it’s got to come together.”
For months, Yellen has been warning lawmakers that the US could run out of cash to pay all of its bills on time in early June.
Yellen said earlier this week that she would try to include more precision in her future updates about when a default might occur. Some House Republicans have expressed doubt that a default could be approaching so quickly, and they have called on the Treasury secretary to appear before Congress and present her full analysis.
Members of the House Freedom Caucus, a group of conservative Republicans, wrote a letter this week to Speaker Kevin McCarthy, R-Calif., urging party leaders to demand that Yellen “furnish a complete justification” of her projection that the US could run out of cash as soon as June 1. They accused Yellen of “manipulative timing” and suggested that her forecasts should not be trusted because she was wrong about how hot inflation would get.
Other independent analyses have also pegged early June as the most likely moment when the United States will hit the X-date. The Bipartisan Policy Center said this week that the US faced an “elevated risk” of running out of cash to pay its bills between June 2 and 13 if Congress does not raise or suspend the nation’s debt limit.
While negotiators have been in round-the-clock talks, no deal has yet been announced. Still, the contours of an agreement between the White House and Republicans are taking shape. That deal would raise the debt limit for two years while imposing strict caps on discretionary spending not related to the military or veterans for the same period.
As officials have been negotiating, the federal government has been running on fumes. The Treasury Department’s cash balance fell to $38.8 billion Thursday, as the United States inched toward running out of cash to meet its financial obligations.
Biden administration officials continued to downplay the possibility that the Treasury Department could avoid a default beyond the X-date by prioritizing payments to bondholders. They also dismissed provocative steps such as invoking the 14th Amendment as a way to continue borrowing and instead reiterated calls on Congress to lift the debt limit.
“Congress has the ability to do that, and the president is calling on them to act on that as quickly as possible,” Wally Adeyemo, the deputy Treasury secretary, told CNN on Friday.
Lael Brainard, director of the White House’s National Economic Council, pressed the negotiators to redouble their efforts to get a deal finalized.
“Negotiators have made progress toward a reasonable, bipartisan budget agreement in recent days, and the secretary’s letter underscores the urgent need for Congress to act swiftly to prevent default,” Brainard said.
In her letter, Yellen also laid out the additional accounting manoeuvres known as “extraordinary measures” that she was taking to delay a potential default until June 5. The actions involved moving $2 billion of Treasury securities between the Civil Service Retirement and Disability Fund and the Federal Financing Bank.
“The extremely low level of remaining resources demands that I exhaust all available extraordinary measures to avoid being unable to meet all of the government’s commitments,” Yellen wrote.
Financial markets have become more jittery as the US moves closer to the deadline for avoiding a potential default. This week, Fitch Ratings said it was placing the nation’s top AAA credit rating on review for a possible downgrade. DBRS Morningstar, another rating firm, did the same Thursday.
Yellen pointed out in her letter that the standoff is already straining financial markets.
“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,” she wrote.
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