The United States could default on its public debt as early as 1 June if no agreement is reached between Republicans and Democrats to raise its debt ceiling, currently set at $31 trillion, Treasury Secretary Janet Yellen said on Monday.
In a letter to Republican House Speaker Kevin McCarthy, Yellen warned that “our best estimate is that we will no longer be able to meet all of the government’s obligations in early June, and potentially as early as June 1.”
In practical terms this does not mean that the US will have to default on its next bond maturities after 1 June, but that in order to continue to meet its constrained spending obligations, the federal government will have to sharply curtail others. These could include health care or pension benefits.
In a statement, the Congressional Budget Office (CBO) confirmed the Treasury’s estimate, saying that because the income tax campaign has been weaker than originally anticipated, it now believes there is a significantly higher risk that the Treasury will run out of funds by early June.
The US reached its debt ceiling, which must be regularly raised by a vote of Congress, in mid-January, and has had to take an initial series of measures to allow it to continue to cover all government spending.
Republicans, who have had a slight majority in the House of Representatives since early January, and Democrats have since entered into a political tug-of-war, with Republicans tying the debt ceiling increase to a cut in federal government spending to validate a deal.
