Is US running out of cash? Janet Yellen says the country could record a default by June 1

The US Treasury Secretary, Janet Yellen said on Sunday that the country is running out of its ability to take “extraordinary measures” to avoid a default. During a one-on-one interview with ABC News, Yellen warned that the United States is expected to hit the debt ceiling by June 1. In the interview, the US official confirmed that it is projected that the department will run out of cash by early June. The US treasury Secretary made these remarks when she was asked if there are any extraordinary measures the government can take to prevent it from happening. 

“Well, really that’s it. We have been using extraordinary measures for several months now. And our ability to do that is running out,” Yellen asserted in the interview on Sunday. “And we will start to run down our cash and our current projection is that in early June a day will come when we’re unable to pay our bills unless Congress raises the debt ceiling. And it’s something I strongly urge Congress to do,” she added. When asked to put a date on it, Yellen asserted that it can be as early as June 1. 

“Yes, early June is when we project that we will run out of cash. And there is a chance it could be as early as June 1st,” Yellen exclaimed. “Of course, there is a lot of uncertainty and I plan to update Congress as new information becomes available. But that’s still our current thinking,” she further suggested, ABC News reported. Yellen made similar assertions when she wrote a letter to the US House and Senate leaders. 

In the letter, the US treasury secretary urged congressional leaders to address the $31.4 trillion limit on its legal borrowing authority. “Of course, it’s appropriate to have negotiations about the budget, about spending priorities. President Biden has presented a detailed budget that cuts deficits by $3 trillion over 10 years while investing in the strength of the American economy. But we do need to raise the debt ceiling to avoid economic calamity,” Yellen asserted on Sunday. 

What happens if the debt ceiling is not increased? 

Yellen talked about what would happen if the congressional leaders don’t increase the debt ceiling by June 1. She mentioned that her department will reach a position where it will be unable to pay all of the bills that will be due in June. This will also be the first time in American history, that the Department will record a default. “Well, Treasury finds itself in the position where we’re unable to pay all of the bills that come due that day. And this would be really the first time in the history of America that we would fail to make payments that are due,” she asserted. “Well, Treasury finds itself in the position where we’re unable to pay all of the bills that come due that day. And this would be really the first time in the history of America that we would fail to make payments that are due,” she added. 

Yellen also asserted that the cash crunch will also have an impact on the country’s reputation in the global economy. She suggested that the country’s security is the “safest bedrock” security that underlines the global financial system. She warned that if the US fails to honour all its debt, it would call into question, the creditworthiness of the global superpower. 

Last month, the US House of Representatives, which is dominated by Republicans passed a bill which would increase this desired ceiling. In return, the House demanded certain cuts in federal spending and other measures to reduce the deficit. However, the Democrats including the US President Joe Biden did not agree with the federal cuts and the whole ordeal reached a stalemate. To deal with the issue, the POTUS is scheduled to meet Speaker Kevin McCarthy and other congressional leaders next week, Biden is expected to negotiate the raising of the US debt limit and ensure that the crucial federal spendings remain protected.