U.S. Expected to Hit Debt Limit This Thursday

Janet Yellen, Treasury Secretary to the Treasury, informed Congress on Friday that the U.S. will attain its milestone. statutory debt limit Next Thursday

After that, this month’s Treasury Department will start “taking certain extraordinary measures to prevent the United States from defaulting on its obligations,” In a letter, Yellen addressed a message to Kevin McCarthy (R-Calif.).

The Treasury “is not currently able” She also wrote an estimate of how long these emergency actions will allow the U.S. Government obligations to be paid.

But, “It is unlikely that cash and extraordinary measures will be exhausted before early June,” Yellen added.

McCarthy was warned by her. “critical that Congress act in a timely manner to increase or suspend the debt limit.”

“Failure to meet the government’s obligations would cause irreparable harm to the U.S. economy, the livelihoods of all Americans, and global financial stability,” Yellen wrote.

“I respectfully urge Congress to act promptly to protect the full faith and credit of the United States.”

McCarthy spokeswoman, McCarthy, did not immediately comment on Yellen’s letter.

Karine Jean-Pierre, White House Press Secretary, told reporters later Friday “Congress is going to need to raise the debt limit without condition”

“It is one of the basic items that Congress has to deal with and that should be done without conditions. So there is going to be no negotiation over it,” Jean-Pierre said. “This is something that must get done.”

Yellen’s letter effectively begins a countdown to see how long the federal government can keep making interest payments on its debt.

In December 2021, Congress increased the federal debt limit by $31.4 trillion

The U.S. government cannot legally borrow more than the limit to meet its existing obligations. These obligations include “Social Security and Medicare benefits, military salaries, interest on the national debt, tax refunds, and other payments,” Yellen noted

The Treasury secretary has the power to take extraordinary measures that free up the government’s borrowing ability.

This can prolong the clock for weeks, or even months, while Congress hammers out a bill that will increase the borrowing limit.

Senate Majority Leader Chuck Schumer, D.N.Y. and House Democratic leader Rep. Hakeem Jeffries, New York, made a joint statement. “Congress must act on legislation to prevent a disastrous default, meet our obligations and protect the full faith and credit of the United States.”

“A default forced by extreme MAGA Republicans could plunge the country into a deep recession and lead to even higher costs for America’s working families on everything from mortgages and car loans to credit card interest rates,” The leaders stated this in their statement.

Yellen wrote that Treasury anticipates two extraordinary measures to be taken. These include suspending and redeeming existing investments in the Civil Service Retirement and Disability Fund and Postal Service Retired Health Benefits Fund, and suspending reinvestment into the Government Securities Investment Fund. 

She pointed out that Congress had previously authorized Treasury to use such measures. This was something the department has used in the past.

“After the debt limit impasse has ended,” These funds “will be made whole,” Yellen wrote.

CNBC was informed by a senior White House official that the Biden administration will continue negotiations with Congress following the April tax deadline.

According to the official, at that point the federal government will be able to see how much revenue it is generating, how far it will go in paying country’s bills, as well as how urgent it needs to strike a deal.  

How brazen Republicans are in demanding cuts in spending will depend on the trajectory of America’s economy between now, and then.

Kentucky Senator Mitch McConnell is the top Senate Republican. He has a long track record of opposing any increase in the debt ceiling, unless fiscally conservative policies were included.

It is unclear if McCarthy’s new GOP majority will join forces over McCarthy’s demands. 

McCarthy has not made any secret of the fact Republicans plan to demand drastic spending cuts to federal budgets in return for increasing the debt ceiling.

He told reporters that GOP lawmakers were his priority on Thursday. “don’t want to put any fiscal problems through our economy, and we won’t.”

Rep. Steve Scalise of Louisiana, the new House majority leader said this week that the U.S. borrowing limit could be compared to a household card and that the nation should curb its spending just as someone who has maxed out their credit cards.

“At the same time you’re dealing with the debt limit, you’re also putting mechanisms in place so that you don’t keep maxing it out,” Scalise stated this to reporters on Capitol Hill “because if the limit gets raised, you don’t go to the store the next day and just max it out again.”

“You start figuring out how to control the spending problem. And this has been going on for way too long. And we’re going to confront this,” He said.

Republicans have missed the point. A U.S. government default would have enormous repercussions all over the world, not unlike a household defaulting on its debt.

Moody’s Analytics, a research firm, warned that defaulting on Treasury bonds could lead to a similar economic collapse to the Great Recession.

Moody’s projected at the time a 4% drop in gross domestic product, and nearly 6 million job losses if the U.S. defaulted.

Yellen wrote the following in her Friday letter to McCarthy “Indeed, in the past, even threats that the U.S. government might fail to meet its obligations have caused real harms, including the only credit rating downgrade in the history of our nation in 2011.”

Yellen added: “Increasing or suspending the debt limit does not authorize new spending commitments or cost taxpayers money. It simply allows the government to finance existing legal obligations that Congresses and Presidents of both parties have made in the past.”

CNBC’s Emma Kinery This article was contributed by.

Correction: An earlier version inaccurately stated the month that Congress increased the statutory default limit.