Yellen Warns US Could Run Out of Money by June 1

WASHINGTON — Treasury Secretary Janet Yellen said in a letter sent to House Speaker Kevin McCarthy, R-Calif., on Monday that the United States could reach the point when it can no longer satisfy its debt obligations as early as June 1, without an increase to its debt limit.

Yellen explained that she was basing her “best estimate” on when a potential default could occur on a review of recent federal tax receipts.

In light of that review, “our best estimate is that we will be unable to continue to satisfy all of the government’s obligations by early June, and potentially as early as June 1, if Congress does not raise or suspend the debt limit before that time.”

“This estimate is based on currently available data, as federal receipts and outlays are inherently variable, and the actual date that Treasury exhausts extraordinary measures could be a number of weeks later than these estimates,” she said.

The debt limit, which is set by Congress, restricts the total amount of money that the federal government can legally borrow. 

When the debt limit is reached, the Treasury Department can no longer borrow money to cover government operations. 

In January, Yellen wrote the speaker to inform him the Treasury Department would immediately begin to draw on “extraordinary measures” — accounting maneuvers that can allow the government to continue standard operations for a limited period.

Despite her warning on Monday, Yellen again emphasized that “it is impossible to predict with certainty the exact date when Treasury will be unable to pay the government’s bills,” and she said she would continue to update Congress in the coming weeks as more information becomes available. 

However, “Given the current projections,” she said, “it is imperative that Congress act as soon as possible to increase or suspend the debt limit in a way that provides longer-term certainty that the government will continue to make its payments.”

Yellen also announced that the Treasury Department is suspending the issuance of State and Local Government Series Treasury securities. 

SLGS are special-purpose Treasury securities issued to states and municipalities to help them comply with certain tax rules. 

“When Treasury issues SLGS, they count against the debt limit,” Yellen explained. “Treasury will take this action to manage the risks associated with the debt limit, but it is not without costs, as it will deprive state and local governments of an important tool to manage their finances.

“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 said. “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.”

Almost immediately after Yellen’s letter became public, Maya MacGuineas, president of the Committee for a Responsible Federal Budget, a fiscal watchdog group, released a statement in which she said, “we need to raise the debt limit as soon as possible, without drama and without serious risk of default.”

“To threaten default or drag one’s feet is the height of irresponsibility. Lawmakers need to commence serious discussions immediately,” she continued. “The House passed a reasonable bill that would raise the debt limit, reduce deficits, and slow the growth of our national debt. 

“Those who prefer a different approach to lifting the debt ceiling and bringing down our out-of-control borrowing — whether at the same time or on different tracks — should offer their own proposals right away,” MacGuineas said.  

“The debt limit offers an opportunity for lawmakers to assess and address the nation’s fiscal situation. But it must be increased — without question and without threatening the full faith and credit of the United States. Lawmakers should stop approaching this as though they are on two different teams, and work together as the leaders of one country,” she added. 

Shai Akabas, director of economic policy at the Bipartisan Policy Center, also released a statement, saying that Yellen’s letter “reminds us that the U.S. government is again within mere months or even weeks of failing to make good on all its obligations.” 

“That is not a position befitting of a country considered the bedrock of the financial system, and only adds uncertainty to an already shaky economy,” Akabas said. 

“As BPC awaits full tax season data to update our debt limit X Date projection in the coming days, we know one thing for sure: there is no time to waste,” he continued. “Even before any payments are missed, uncertainty is significantly impacting the U.S. and global economy and costing American taxpayers in the form of higher interest payments on Treasury securities. 

“The House’s action last week was a necessary step forward in the process,” Akabas said. “Both parties have laid out their fiscal priorities — President Biden in his budget and House Republicans in the Limit, Save, Grow Act. Now, the actual work of negotiating must be done, as this situation will only be resolved when both sides work together on behalf of the American people.”

Dan can be reached at [email protected] and @DanMcCue