The US government's ability to meet its financial obligations is once again at risk due to the approaching debt ceiling. A new letter from Treasury Secretary Janet Yellen indicates that the government may not have enough funds to continue operating past June 1, and certainly not beyond mid-June. If Congress does not raise or suspend the debt limit before that time, the US could face an immediate default, which would cause economic turmoil and have significant repercussions around the world.
June 15 is a crucial date, as it marks the next time that Treasury's coffers will see a sizable influx of money. Taxpayers will be providing the second installment of their estimated taxes for 2023 around that time. However, experts fear that the balance may reach zero before that date, setting off steep declines in markets and an immediate recession.
While some analysts project late July as the "peak danger zone" for default, Yellen's letter offers a more aggressive estimate, indicating that the government could run out of funds as early as June 1. The Congressional Budget Office and the Bipartisan Policy Center are expected to release their own estimates in the coming weeks.
Yellen urges Congress to raise or suspend the debt limit as soon as possible, warning that waiting until the last minute 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 also announced a new "extraordinary measure" - the temporary suspension of the issuance of State and Local Government Series Treasury securities - which will deprive state and local governments of an important tool to manage their finances.
Negotiations between lawmakers and the White House over the debt ceiling are expected to resume next week, with President Biden inviting Speaker McCarthy to the White House on May 9 for a meeting alongside other Congressional leaders. The White House is calling for a clean increase to the debt ceiling, while House Republicans passed a bill last week that includes a debt ceiling increase alongside provisions that Democrats oppose.
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