Treasury Secretary Janet Yellen on Friday notified Congress that the U.S. will reach its statutory debt limit next Thursday.
After that, the Treasury Department this month will begin “taking certain extraordinary measures to stop the USA from defaulting on its obligations,” Yellen wrote in a letter to latest House Speaker Kevin McCarthy, R-Calif.
The Treasury “is just not currently able” to estimate how long those emergency actions will allow the U.S. to pay for presidency obligations, she wrote.
But, “It’s unlikely that money and extraordinary measures will likely be exhausted before early June,” Yellen added.
She warned McCarthy that it’s “critical that Congress act in a timely manner to extend or suspend the debt limit.”
“Failure to satisfy the federal government’s obligations would cause irreparable harm to the U.S. economy, the livelihoods of all Americans, and global financial stability,” Yellen wrote.
“I respectfully urge Congress to act promptly to guard the complete faith and credit of the USA.”
A spokeswoman for McCarthy had no immediate comment on Yellen’s letter.
White House Press Secretary Karine Jean-Pierre told reporters later Friday, “Congress goes to wish to lift the debt limit without condition”
“It’s considered one of the fundamental items that Congress has to take care of and that needs to be kept away from conditions. So there’s going to be no negotiation over it,” Jean-Pierre said. “That is something that must get done.”
Yellen’s letter effectively starts a clock counting down how long the federal government can proceed to make interest payments on its debt.
Congress in December 2021 increased the federal debt limit to about $31.4 trillion.
The limit is the full sum of money the U.S. government is allowed legally to borrow to pay for its existing obligations. Those obligations include “Social Security and Medicare advantages, military salaries, interest on the national debt, tax refunds, and other payments,” Yellen noted
The so-call called extraordinary measures available to the Treasury secretary release the federal government’s borrowing capability.
This will extend the clock for weeks or months while Congress hashes out a bill to lift the borrowing limit.
Senate Majority Leader Chuck Schumer, D-N.Y., and House Democratic leader Rep. Hakeem Jeffries of Latest York, in a joint statement, said, “Congress must act on laws to stop a disastrous default, meet our obligations and protect the complete faith and credit of the USA.”
“A default forced by extreme MAGA Republicans could plunge the country right into a deep recession and result in even higher costs for America’s working families on all the pieces from mortgages and automobile loans to bank card rates of interest,” the leaders said of their statement.
Yellen wrote that the 2 extraordinary measures that Treasury expects to implement are redeeming existing and suspending latest investments of the Civil Service Retirement and Disability Fund and the Postal Service Retiree Health Advantages Fund; and suspending reinvestment of the Government Securities Investment Fund of the Federal Employees Retirement System Thrift Savings Plan.
She noted Congress previously authorized the Treasury to make use of such measures, which the department has employed up to now.
“After the debt limit impasse has ended,” those funds “will likely be made whole,” Yellen wrote.
A senior White House official told CNBC the Biden administration plans to pursue negotiations in earnest with Congress after the mid-April tax deadline.
At that time, the official said, the federal government could have a greater idea of how much revenue is coming in, how far it’s going to go in paying the country’s bills and the way urgently it needs to succeed in a deal.
The trajectory of the American economy between at times may also determine how brazen Republicans turn into of their demands to chop spending in response.
Sen. Mitch McConnell of Kentucky, the highest Senate Republican, has an extended record of rejecting a rise to the debt ceiling unless fiscally conservative policies are included.
It stays unclear whether the brand new GOP majority within the House under McCarthy will unite over its own set of demands.
McCarthy has made little secret of the incontrovertible fact that Republicans intend to demand massive spending cuts to the federal budget in exchange for approving a rise within the debt ceiling.
But he told reporters on Thursday that GOP lawmakers “don’t desire to place any fiscal problems through our economy, and we can’t.”
The brand new House majority leader, Rep. Steve Scalise, R-La., earlier this week compared the U.S. borrowing limit to a household bank card, saying the nation needed to curb its spending the identical way an individual with maxed out bank cards would.
“At the identical time you are coping with the debt limit, you are also putting mechanisms in place so that you just don’t keep maxing it out,” Scalise said to reporters on Capitol Hill, “because if the limit gets raised, you do not go to the shop the following day and just max it out again.”
“You begin determining tips on how to control the spending problem. And this has been occurring for way too long. And we will confront this,” he said.
What Republicans have didn’t say, nonetheless, is that, unlike a household that defaults on its debt, a U.S. government default would have massive repercussions around the globe.
A default on Treasury bonds could throw the U.S. economy right into a tailspin as bad because the Great Recession, the research firm Moody’s Analytics warned in a September 2021 report.
On the time, Moody’s also projected a 4% decline in gross domestic product and the lack of nearly 6 million jobs if the U.S. defaulted.
In her letter to McCarthy on Friday, Yellen wrote, “Indeed, up to now, even threats that the U.S. government might fail to satisfy its obligations have caused real harms, including the one credit standing downgrade within the history of our nation in 2011.”
Yellen added: “Increasing or suspending the debt limit doesn’t authorize latest spending commitments or cost taxpayers money. It simply allows the federal government to finance existing legal obligations that Congresses and Presidents of each parties have made up to now.”
CNBC’s Emma Kinery contributed to this text.
Correction: An earlier version of this text incorrectly stated the month wherein Congress increased the statutory debt limit.
