US facing June 5 deadline to avoid default
Washington, May 26 (EFE).- The United States government will begin defaulting on some financial obligations if Congress does not resolve the impasse over the debt ceiling by June 5, Treasury Secretary Janet Yellen said Friday in a letter to House Speaker Kevin McCarthy and other legislative leaders.
“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,” she wrote.
Yellen had warned previously that the US could default as early as June 1 if debt-ceiling negotiations between the administration of Democratic President Joe Biden and the Republican-controlled House of Representatives failed to produce agreement.
“We will make more than $130 billion of scheduled payments in the first two days of June, including payments to veterans and Social Security and Medicare recipients. These payments will leave Treasury with an extremely low level of resources,” the secretary informed congressional leaders.
Without a resolution of the debt impasse, the Treasury will not have the money to disburse $92 billion in payments and transfers – including Social Security – that are due in the week of June 5, 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 wrote.
“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,” she said.
Since Jan. 19, when the current statutory debt limit was reached, the Treasury Department has been resorting to what it calls “extraordinary measures” to avoid defaulting on US obligations.
Yellen’s update came a few hours after the head of the International Monetary Fund (IMF) said that US political leaders need to agree as soon as possible on raising the debt ceiling and averting what could be the largest default in history.
“We all have read the fairy tale about Cinderella – Cinderella having to leave the ball exactly at midnight,” Kristalina Georgieva said. “And we’re at this point. So before our carriage turns into a pumpkin, could we please get this sorted?”
Georgieva said that signs negotiators for Biden and McCarthy are making progress toward a deal made her hopeful of seeing a “12th-hour” accord to avoid catastrophe.
“The US Treasury market is the anchor of stability for the global financial system. You pull the anchor, the world economy, the ship on which we all travel, is in choppy and even worse, unchartered waters,” the Bulgarian economist said.
“Inevitably, we would be at the time of contraction in the US and in the world economy and that would come as a shock, upon shock upon shock,” she said.
Looking beyond the present crisis, Georgieva appealed to the US Congress to devise a new approach to fiscal policy that does not include periodic fights over the debt ceiling.
“Can you please come up with a different way in which you address this issue?” she said during the presentation of the IMF’s latest report on the US economy, which advocated steps by Washington to reduce budget deficits by boosting tax revenues.