Treasury Secretary Janet Yellen told Congress on Friday that the US will reach its legal debt limit next Thursday.
After that, this month the Treasury Department will begin “to take certain exceptional measures to prevent the United States from defaulting on its commitments,” Yellen wrote in a letter to new House Speaker Kevin McCarthy, R-Calif.
The Treasury Department “is currently unable” to estimate how long these emergency measures will allow the US to pay for government obligations, she wrote.
But: “It is unlikely that cash and extraordinary measures will be exhausted before early June,” Yellen added.
She warned McCarthy that it was “crucial that Congress act in a timely manner to raise or suspend the debt limit.”
“Failure to meet government commitments would irreparably damage the US economy, the livelihoods of all Americans, and global financial stability,” Yellen wrote.
“I respectfully request that Congress act immediately to protect the full confidence and credit of the United States.”
A spokeswoman for McCarthy initially did not comment on Yellen’s letter.
White House press secretary Karine Jean-Pierre told reporters Friday, “Congress must raise the debt limit unconditionally.”
“It’s one of the fundamental issues that Congress needs to deal with, and it should be done unconditionally. Therefore, there will be no negotiations about it,” said Jean-Pierre. “This is something that needs to be done.”
Yellen’s letter starts a clock that counts down how long the federal government can make interest payments on its debt.
Congress raised the national debt limit to about $31.4 trillion in December 2021.
The limit is the total amount that the US government can legally borrow to meet its existing obligations. Those obligations include “Social Security and Medicare benefits, military salaries, interest on the federal debt, tax returns and other payments,” Yellen noted
The so-called extraordinary measures available to the finance minister unleash the government’s borrowing capacity.
This can add weeks or months to the clock while Congress drafts a bill to raise the credit limit.
Senate Majority Leader Chuck Schumer, DN.Y., and House Democrat Chairman Hakeem Jeffries of New York said in a joint statement, “Congress must implement legislation to prevent a catastrophic default on our commitments.” satisfy and protect the full faith and credit of the United States.”
“A default forced by extreme MAGA Republicans could plunge the country into a deep recession and lead to even greater costs for America’s working families on everything from mortgages and car loans to credit card interest rates,” the leaders said in their statement.
Yellen wrote that the two extraordinary measures that the Treasury Department expects to implement are the repayment of existing and the suspension of new investments in the Civil Service Pension and Disability Fund and the Health Insurance Fund for Postal Service Retirees; and suspending reinvestment of the Government Securities Investment Fund of the Federal Employees Retirement System Thrift Savings Plan.
She noted that Congress had previously authorized the Treasury Department to take such actions, which the Department has used in the past.
“After the debt limit impasse is resolved,” those funds will be “replenished,” Yellen wrote.
A senior White House official told CNBC the Biden administration plans to begin serious negotiations with Congress after the mid-April tax deadline.
By that time, the official said, the federal government will have a better idea of how much revenue is coming in, how far it will go in paying the country’s bills, and how urgently it needs to reach an agreement.
How America’s economy develops by then will also determine how bold Republicans get in their calls for spending cuts.
Sen. Mitch McConnell of Kentucky, the top Senate Republican, has long opposed raising the debt ceiling unless it includes fiscally conservative measures.
It remains unclear whether the new GOP majority in the McCarthy House of Representatives will agree on their own demands.
McCarthy has made little secret of the fact that the Republicans want to demand massive spending cuts in the federal budget in return for a hike in the debt ceiling.
But he told reporters Thursday that GOP lawmakers “don’t want to put fiscal problems through our economy, and we won’t.”
New House Majority Leader Rep. Steve Scalise, R-La., earlier this week compared the US credit limit to a household credit card, saying the nation needs to rein in spending the same way a person with maxed-out credit cards does.
“At the same time, you’re dealing with the debt limit and setting up mechanisms so you’re not constantly maxing it out,” Scalise told reporters on Capitol Hill, “because when the limit goes up, you don’t go to the store the next day and just scoop.” everything off again.”
“You start figuring out how to control the spending problem. And it’s been like this for far too long. And we’re going to deal with that,” he said.
What Republicans haven’t said, however, is that a US government default, as opposed to a budget defaulting on its debts, would have massive repercussions around the world.
A Treasury default could send the US economy into a tailspin like the Great Recession, warned research firm Moody’s Analytics in a September 2021 report.
Moody’s also forecast at the time a 4% drop in gross domestic product and the loss of nearly 6 million jobs if the US defaults.
In her Friday letter to McCarthy, Yellen wrote, “Indeed, even threats that the U.S. government might default on its commitments have done real damage in the past, including the only credit downgrade in our nation’s history in 2011.”
Yellen added: “Increasing or suspending the debt limit does not authorize new spending commitments or cost taxpayers money. It merely allows the government to fund existing legal commitments made in the past by Congress and Presidents of both parties.”
CNBC’s Emma Kinerie contributed to this article.
Correction: A previous version of this article incorrectly stated the month that Congress raised the statutory debt limit.
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