Janet Yellen has warned the US Treasury is in danger of running out of cash in October unless Congress raises the debt ceiling, as the government walks on a tight rope to avoid a possible US default.
In a letter to House Speaker Nancy Pelosi and other lawmakers yesterday, the Treasury secretary said a “specific estimate” was hard to achieve, but that the department would “most likely” exhaust its cash supplies at some point in October, giving way to a historical default.
“A delay that calls into question the federal government’s ability to meet all its obligations would likely cause irreparable damage to the US economy and global financial markets,” Yellen 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,” she added.
It comes at a bad time for president Joe Biden’s reputation, as he prepares to push his multitrillion-dollar economic plan through Congress in the next few weeks, while also firefighting the rapid spread of the Delta variant across the US and the country’s deadly withdrawal from Afghanistan.
Economists generally agree that a US default would spark a severe economic downturn and send borrowing costs through the roof, echoing what Yellen cautioned.
“At a time when American families, communities, and businesses are still suffering from the effects of the ongoing global pandemic, it would be particularly irresponsible to put the full faith and credit of the United States at risk,” Yellen said of the timing.