U.S. Treasury chief Janet Yellen warned Sunday of an “economic and financial catastrophe” for the United States and the world economy if President Joe Biden and Congress cannot agree on raising the country’s debt ceiling so the government can continue to pay its bills.
“Early June is when we run out of cash” to pay ongoing bills, Yellen told ABC’s “This Week” show, although she allowed that there is “a lot of uncertainty” on exactly what day that might be.
The U.S. Treasury has already taken “extraordinary measures” to continue to pay debts since reaching the country’s $31.4 trillion borrowing limit in January, but Yellen said, “Our ability to do that is running out and we will start to run down our cash.”
“The day will come when we are unable to pay our bills,” she said.
Biden has invited top congressional leaders to the White House on Tuesday to discuss how to avert the looming crisis.
The Democratic president has for months called on Congress, including the House of Representatives narrowly controlled by Republicans, to hike the debt ceiling without other conditions.
But instead, House Republicans, by a two-vote margin, last month approved a debt ceiling increase for a year while attaching broad government spending cuts for social programs and climate control measures that Biden and congressional Democrats oppose.
The U.S. has never defaulted on its debt — payments for programs Congress has already approved — but Yellen warned that if the government runs out of cash, interest payments on U.S. government bonds held by Americans and overseas governments could be curtailed, monthly Social Security payments to older people and health care payments to their doctors could be delayed, and businesses could furlough thousands of workers.
“There could be a steep decline in the stock market,” she said, and the country’s creditworthiness questioned.
The U.S. has raised its debt ceiling 78 times, under both Democratic and Republican presidents. Amid the current uncertainty, some Washington analysts are predicting that Biden and Republican opponents could in the coming weeks reach an agreement that both could claim as a victory of sorts, with the debt ceiling raised and Biden agreeing separately to curb spending in the fiscal year that starts October 1.
White House advisers have also been considering whether, for the first time, to invoke the U.S. Constitution’s 14th Amendment, which says that the full faith and credit of the United States shall not be questioned. Use of the provision would almost certainly draw a legal challenge from those opposed to unilaterally increasing the debt ceiling.
Yellen did not rule out invoking use of the constitutional provision but characterized it as among a list of bad options.
“I don’t want to consider emergency options,” she said.
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