US Treasury Secretary Janet Yellen revealed on Friday that lawmakers have a little over a week to hash out a debt ceiling deal before the federal agency runs out of funds and begins to default on financial obligations.
"Based on the most recent available data, we now estimate that Treasury will have insufficient resources to satisfy the government’s obligations if Congress has not raised or suspended the debt limit by June 5," Yellen said in a letter to House Speaker Kevin McCarthy (R-CA).
Yellen explained that the federal government has a number of large payments coming up and the Treasury has already used some of its last remaining "extraordinary measures" to turn up funds to pay those bills.
"[O]ur projected resources would be inadequate to satisfy all of these obligations," she said.
"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," Yellen continued. "In fact, we have already seen Treasury’s borrowing costs increase substantially for securities maturing in early June."
"If Congress fails to increase the debt limit, it would cause severe hardship to American families, harm our global leadership position, and raise questions about our ability to defend our national security interests. I continue to urge Congress to protect the full faith and credit of the United States by acting as soon as possible," Yellen said.
Her warning comes just hours after economists at Goldman Sachs, the world's second-largest bank, announced their conclusion that the federal government only has enough money to pay its bills until June 9. If the debt ceiling is not raised by then and new funds appropriated, the coffers will run dry and the US will default on its debt.
Still, talks have continued, with US media reporting Friday that Biden and McCarthy were closing in on a deal, but several key issues remained outstanding, including scaling back plans to hire more Internal Revenue Service (IRS) auditors, halting non-defense discretionary spending from increasing beyond their 2023 levels, and whether or not the deal would raise the debt ceiling for one year or two.
If the US defaults on its debt, it is likely to seriously damage its credit rating. As Yellen noted, the US' credit rating was downgraded in 2011, despite narrowly avoiding a default, because lawmakers waited to within hours to agree to a deal.
Despite the dangers, at an Article IV consultation on Friday with International Monetary Fund (IMF) Managing Director Kristalina Georgieva, Yellen "noted the resilience of the US economy in the face of global headwinds."