On June 1, the U.S. may run out of money

U.S. Treasury Secretary Janet Yellen warned that if Congress does not raise the legally allowed U.S. debt ceiling or suspend it, by June 1 the country’s government could run out of money. This could lead to a default, which has never been done in U.S. history.

Without raising the ceiling (the maximum allowed amount of debt), the U.S. authorities will not be able to get new loans.

On Monday, Yellen urged Congress to raise the limit, which is now set at $31.4 trillion, as quickly as possible.

On the same day, the Congressional Budget Office (CBO) warned of a “significant risk that the Treasury Department will run out of funds by early June.” “However, it remains unclear exactly when funds may run out, as it is difficult to predict the amount of spending and the timing and size of tax revenues in the coming weeks,” the report said.

By the end of the quarter, which is June, the Treasury Department plans to increase its borrowing by about $449 billion over previous plans; that would bring it to about $726 billion.

U.S. officials say they have to borrow more because income tax revenues have been lower than expected and government spending, on the other hand, has exceeded plans. In addition, as of the beginning of the quarter, there were fewer funds in government accounts than anticipated.

Raising the national debt ceiling is a fairly routine procedure in the US: it has happened 78 times since 1960.

But now the Republicans who control the House of Representatives object to the spending program announced by Democratic President Joe Biden. In return for allowing him to raise the maximum loan amount, they demanded drastic cuts in government spending and the cancellation of some crucial White House decisions, including student debt forgiveness and tax credits for environmental technology.

In turn, such demands have been opposed by Democrats, who hold a majority in the Senate, the upper house of Congress. President Biden said last week that “there can be no negotiations” on these issues.

The threat of default

However, the head of the White House is under increasing pressure to agree to discuss the Republican proposals.

Otherwise, the U.S. could be threatened with default, that is, the formal inability of the government to service its debts. Such developments could bring down the global financial markets and destroy faith in the U.S. as a reliable player.

Experts warn that default could also lead to recession and higher unemployment.

If the U.S. government runs out of money, it will not be able to borrow money to pay salaries to employees of government agencies and the military; social benefits to citizens and other government obligations will also be jeopardized such as payments to Defense Department suppliers.

Even television weather forecasts could be affected, since many television stations use data from the National Weather Service, which is federally funded.

“We know from experience of past debt limit impasses that waiting until the very last minute to increase or suspend the debt ceiling could cause serious damage to business and consumer confidence, raise the short-term cost of borrowing for taxpayers and negatively impact the U.S. credit rating,” Yellen wrote to congressmen on Tuesday.

She added that she could not predict exactly when the U.S. government might run out of money.

In another letter sent to Congress in January, Yellen said the Treasury Department had begun implementing “emergency measures” to avoid default.

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