US Treasury Secretary Janet Yellen has warned that the US may run out of cash by 1 June if Congress fails to raise or suspend the debt ceiling.
Reaching the debt ceiling would mean that the government is unable to borrow any more money.
On Monday, Ms Yellen urged Congress to act “as soon as possible” to address the $31.4tr (£25.12tr) limit.
President Joe Biden has called a meeting of congressional leaders on the issue on 9 May.
The debt ceiling has been raised, extended or revised 78 times since 1960.
In this instance, House Republicans have demanded drastic spending cuts and a reversal of some aspects of President Biden’s agenda – including his student loan forgiveness programme and green energy tax credits – in exchange for votes to raise the debt ceiling. This, in turn, has prompted objections from Democrats in the Senate and from President Biden, who said last week that the issue is “not negotiable”.
The president, however, is coming under increasing pressure from business groups – including the US Chamber of Congress – to discuss Republican proposals.
A default – which would be the first in US history – could upend global financial markets and shatter trust in the US as a global business partner.
Experts have warned that a default could also see the US head into a recession and lead to rising unemployment.
It would also mean that the US would be unable to borrow money to pay the salaries of government employees and military personnel, social security cheques or for other obligations, such as defence contractor payments.
Even weather forecasts could ultimately be impacted, as many rely on data from the federally-funded National Weather Service.
In a letter to members of Congress on Tuesday, Ms Yellen said that “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.”
Ms Yellen added that it is impossible to know for sure when exactly the US will run out of cash.
Her 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.
The Treasury plans to increase borrowing through the end of the quarter ending in June, totalling about $726bn – about $449bn more than projected earlier this year. Officials have said this is partly due to lower-than-expected income tax receipts, higher government spending and a beginning-of-quarter cash balance that was lower than anticipated.
In a joint statement on Monday, Democratic Senate Majority Leader Chuck Schumer and House Democratic Leader Hakeem Jeffries said that the US “does not have the luxury of waiting until June 1 to come together, pass a clean bill to avoid a default and prevent catastrophic consequences for our economy and millions of American families.”
“Republicans cannot allow right-wing extremism to hold our nation hostage. For generations, Congress has made spending and revenue decisions as part of the annual budget process, which is currently underway,” the statement said. “That is the appropriate place to debate and discuss our nation’s fiscal picture – not in a hostage-situation in which extreme MAGA Republicans try to impose their radical agenda on America.”
On the Republican side, House Speaker Kevin McCarthy accused President Biden of having “refused to do his job” and “threatening to bumble our nation into its first ever default”.
“The clock is ticking,” Mr McCarthy said in a statement. “After three months of the Biden administration’s inaction, the House acted, and there is a bill sitting in the Senate as we speak that would put the risk of default to rest. The Senate and the President need to get to work — and soon.”
In another letter sent to members of Congress in January, Ms Yellen said that the Treasury Department had begun “extraordinary measures” to avoid a government default. (BBC)
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