Treasury Secretary Janet Yellen said new data reinforced an earlier warning that the US could default on its debts as early as June 1, ahead of crunch talks Tuesday between President Joe Biden and Republican leaders.
The Treasury has warned of “catastrophic” consequences if the US runs out of cash to pay its bills, which would leave it unable to pay federal workers and trigger a likely surge in interest rates with a huge impact for businesses and mortgage holders.
“We still estimate Treasury will likely no longer be able to satisfy all of the government’s obligations if Congress has not acted to raise or suspend the debt limit by early June, and potentially as early as June 1,” she wrote on Monday in a letter to the Republican speaker of the House of Representatives, Kevin McCarthy.
The talks have a lot of ground to cover, with the two parties still sharply divided on the terms under which they will agree to lift the government’s borrowing cap to pay for existing spending commitments.
Republicans continue to insist that Biden agree to significant spending cuts in exchange for their support to raise the debt ceiling, while Democrats have been calling for a “clean” increase of the borrowing limit with no strings attached.
They have accused Republicans of using extreme tactics to push their political agenda ahead of the so-called “X-date” — the point at which the United States will be unable to meet its financial obligations.
The nonpartisan Congressional Budget Office has forecast that the X-date could be reached by June 15.
– Still ‘far apart’ –
House, Senate and White House negotiators met over the weekend in a bid to make progress ahead of the talks, US media reported.
McCarthy has signaled the two sides still have much to hammer out.
“I still think we’re far apart,” he told reporters Monday at the US Capitol, adding that “it doesn’t seem to me yet that they want a deal.”
“They’re not talking anything serious,” he said. “It seems more like they want a default than a deal.”
Republicans, who regained control of the House in the midterm elections, are using their newfound political clout to demand deep cuts of roughly $130 billion from federal agencies and programs in exchange for their support, limiting spending in the 2024 fiscal year to 2022 levels.
They also want to expedite domestic energy production projects, simplify the process for obtaining permits for pipelines and refineries, claw back unspent Covid relief funding and impose work requirements for social programs.
Biden has rebuffed many of these proposals, accusing Republicans of “holding the economy hostage” to further their political objectives.
– Four days left –
Including Monday, there are just four days remaining when the House and Senate are both in session before June 1.
Some senators have acknowledged that they may have to cancel the Memorial Day recess beginning Thursday to get a deal finalized, although there is no official plan to do so.
In recent days, Biden has suggested he may have to postpone a planned trip to Asia this week if the two sides fail to reach agreement, but has stopped short of canceling his visit while the talks continue.
As the X-date draws closer, Democrats in Congress have begun considering a range of alternatives, including using an arcane congressional procedure to bypass McCarthy.
They’ve also contemplated asking Biden to invoke the 14th Amendment to raise the debt ceiling unilaterally — a move opposed by Republicans.
The legal argument for doing so hinges around language in the Civil War-era amendment stating that US sovereign debt “shall not be questioned,” which some legal scholars believe would allow the Treasury to simply ignore the debt limit.
But Biden has cautioned that the move would be challenged in court, and has instead continued to call on Republicans to support a clean increase to the debt ceiling.
Not doing so could cause a recession, which would be “catastrophic,” Deputy Treasury Secretary Wally Adeyemo told CNN Sunday.
“The United States of America has never defaulted on its debt — and we can’t,” he said.