Treasury Secretary Janet L. Yellen said on Monday that the United States could run out of money to pay its bills by June 1 if Congress does not raise or suspend the debt limit, putting pressure on President Biden and lawmakers to reach a swift agreement to avoid defaulting on the nation’s debt.
Stating a precise date for such an unthinkable event to occur could galvanize the lawmakers in the House, Senate and President Biden to intensify the negotiations to reach an agreement.
Mr. Biden on Monday called the top four leaders in Congress to ask for a meeting on May 9 to discuss fiscal issues. The president reached out to Speaker Kevin McCarthy and Representative Hakeem Jeffries of New York, the minority leader, along with Senator Chuck Schumer of New York, the majority leader; and Senator Mitch McConnell of Kentucky, the minority leader.
Economists have warned that failure to raise the debt limit, which caps the total amount of money the United States can borrow, threatens to rock financial markets and throw the global economy into a tailspin.
Because the United States runs a budget deficit — meaning it spends more money than it takes in — it must borrow huge sums of money to pay its bills. In addition to paying Social Security benefits, along with salaries for the military and government workers, the United States is also required to make interest and other payments to the bondholders who own its debt.
The Treasury Department had previously projected that it could run out of cash sometime in early June, but the new estimate raises the alarming prospect that the United States could be unable to make some payments, including to bondholders, in a matter of weeks.
“Given the current projections, 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,” Ms. Yellen said in a letter to Congress.
White House officials had not expected the date of possible default to arrive so soon, and the accelerated timetable could scramble the president’s approach to the potential crisis.
There is no official playbook for what Washington can do to avert such a disaster. But options do exist. The Treasury could try to prioritize payments, such as paying bondholders first. If the United States does default on its debt, which would rattle the markets, the Federal Reserve could theoretically step in to buy some of those Treasury bonds.
Mr. Biden has continued to insist he will not negotiate directly over the limit, saying Congress must do so without conditions. But he has been preparing to meet with Democratic and Republican leaders, including Mr. McCarthy, at the White House for discussions on taxes and spending. Many administration officials have expressed optimism that those talks could produce a fiscal agreement that could also result in the debt limit being raised.
However, the shortened deadline of June 1st, leaves little time for the president and congressional leaders to find agreement on raising the limit. McCarthy is traveling in the Middle East this week. Later this month, Biden is scheduled to attend the Group of 7 nations leaders’ summit in Japan, then travel on to Australia for a summit with the leaders of Japan, India and Australia. Nevertheless, Mr. Biden is adamant that it will not come to the worst-case scenario anticipated, saying that, “For over 200 years, America has never, ever, ever failed to pay its debt. To put in the capital — in colloquial terms, America is not a deadbeat nation. We have never, ever failed to meet the debt.”
