Treasury Secretary Janet Yellen on Tuesday warned members of Congress that the United States’ cash reserves will likely be exhausted unless lawmakers vote to raise or suspend the debt ceiling by Oct. 18, warning that it’s not clear if the United States would be able to meet all of its financial obligations if no deal is passed by then.
If that deadline is reached, “we expect Treasury would be left with very limited resources that would be depleted quickly,” Yellen warned, adding that it is “uncertain whether we could continue to meet all the nation’s commitments after that date.”
Should the debt limit be reached without a bill passed in Congress, Yellen wrote (pdf) that there could be “substantial disruptions” to the stock market that will thereby “erode investor confidence” and increase volatility. The federal government has spent, on average, about $50 billion per day and at times has exceeded $300 billion in daily expenditures in the past year, according to her office.
“Furthermore,” the secretary added, “we know from previous debt limit impasses that waiting until the last minute can cause serious harm to business and consumer confidence, raise borrowing costs for taxpayers, and negatively impact the credit rating of the United States for years to come.”
The Bipartisan Policy Center recently projected that the Treasury will run out of cash to meet the government’s financial obligations between Oct. 15 and Nov. 4.
“After running out of cash, Treasury will be unable to meet approximately 40 percent of all payments due in the several weeks that follow,” the group wrote on Sept. 24. “How Treasury would operate in such an environment is unclear. Prioritization and delayed payments are two possibilities, but substantial uncertainty exists about operationalizing them.”
Last week, the White House circulated a letter to governors stating that a U.S. default could trigger an economic recession, and analysts have warned that as many as 6 million jobs could be lost.
Yellen’s warning comes just hours after Senate Republicans blocked a measure to avert a federal default and provide funding to the government on Monday evening. All 50 GOP senators voted against the House-approved bill that combined a continuing resolution that funds the government until Dec. 3 and suspends the debt limit until the end of 2022.
In a 48–50 vote, the bill failed to clear the 60-vote filibuster hurdle needed to end debate in the upper chamber. Previously, Senate Minority Leader Mitch McConnell (R-Ky.) said his caucus won’t sign onto a debt limit hike, although earlier this month, he stated that “America must never default.”
“Bipartisanship is not a light switch: a light switch that Democrats get to flip on when they need to borrow money and switch off when they want to spend money,” the GOP leader said Monday. For weeks now, Republicans said Democrats can take unilateral action to raise the debt ceiling and finance spending Biden administration-backed bills worth trillions of dollars.
Republicans, meanwhile, have assailed a Biden-backed $3.5 trillion spending package that focuses primarily on climate and social welfare programs, saying that the package is too expensive. And over the past year, Congress passed several COVID-19-related stimulus packages worth trillions while a $1.1 trillion infrastructure Senate-passed measure is scheduled for a vote in the House later this week.