The United States Treasury Secretary Janet Yellen has warned that the US may run out of cash by June 1 if Congress is unable to raise or suspend the debt ceiling. If the US reaches debt ceiling, it would mean that the government is unable to borrow more money. Following her announcement, Yellen urged Congress to act “ as soon as possible” to address the $ 31.4 trillion limit, as reported by BBC. US President Joe Biden has called a meeting of the Congressial leaders on the issue on May 9. According to BBC, the debt ceiling has been revised 78 times since 1960.
After the announcement made by Yellen, House Republicans are demanding drastic spending cuts and have also urged the government to reverse some of the aspects the agenda set by Joe Biden. It includes student loan forgiveness programme and green energy tax credits, BBC reported.
This has prompted objections from Democrats in the Senate and from Biden, who had earlier said that the issue is "not negotiable". A default, which would be the first in country’s history, can could alter the financial markets and hamper the trust in US as a global partner. According to BBC, experts have issued a warning and said that a default could also see the country head into a recession which can result in rising unemployment.
This would also mean that the US will not be able to borrow money to pay salaries of government employees and military personnel and other obligations.
"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 to the members of Congress in a letter, as quoted by BBC.
She also said that it is impossible to know when exactly the country will run out of cash. The announcement came on the same day as the Congressional Budget Office (CBO) reported that there is a "significantly greater risk that the Treasury will run out of funds in early June".
"The projected exhaustion date remains uncertain, however, because the timing and amount of revenue collections and outlays over the coming weeks are difficult to predict," the CBO report said, as quoted by BBC. The treasury has decided to increase borrowing through the end of this quarter, which is ending in June to about $726 billion, $449bn more than projected earlier this year. According to officials this decision has been taken partly due to lower than expected income tax receipts, higher government spending, as reported by BBC.