U.S. Treasury Secretary Janet Yellen sent up a warning Friday that the government could run out of cash as soon as mid-June if lawmakers don’t soon lift the roughly $31.4 trillion debt limit.
If the nation’s debt hits that marker — it’s on track to do so by this Thursday — the Treasury will need to take “extraordinary measures” to help pay for the government’s operations and ward off a historic default, including:
1. Redeeming existing, and suspending new, investments of the Civil Service Retirement and Disability Fund (CSRDF) and the Postal Service Retiree Health Benefits Fund (Postal Fund)
2. Suspending reinvestment of the Government Securities Investment Fund (G Fund) of the Federal Employees Retirement System Thrift Savings Plan.
According to Yellen, Congress has already provided Treasury the authority to implement the two steps. She says prior Treasury Secretaries have implemented the measures to reduce debt and make financing available.
However, she underscored how the measures are a bandaid for a bigger wound.
“While Treasury is not currently able to provide an estimate of how long extraordinary measures will enable us to continue to pay the government’s obligations, it is unlikely that cash and extraordinary measures will be exhausted before early June,” Yellen said in a letter to Speaker Kevin McCarthy (R-Ca.).
Failure to meet the government’s obligations would cause “irreparable harm” to the U.S. economy, the livelihoods of all Americans, and global financial stability, according to Yellen.
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A House Divided
The obligations may go unmet, however, as some hardline House conservatives want to use “leverage” they think they have relative to the topic to garner reforms in the budget and spending process.
House Republicans face an internal fight on where to cut federal spending. The dispute pits GOP lawmakers who want to protect military spending against those who see such expenditures as fair game in any negotiations alongside cuts to domestic programs.
Republicans must also decide whether to pursue money-saving changes to Medicare and Social Security, which many would like to consider, despite being politically perilous.
Rep. James Comer (R-Ky.), who leads the House Oversight Committee, told CNN’s “State of the Union” that Republicans in the House “won’t budge” on their demands for spending cuts in exchange for raising the federal debt ceiling, noting that the GOP’s midterm campaign promises included getting “serious about spending cuts.”
Rep. Ro Khanna (D-Calif.), appearing separately on CNN, agreed that debates on future spending are “legitimate,” but “you don’t debate whether you pay your debts” and “you don’t debate the prestige of the United States.”
The Budget Plan
House Republicans are preparing a plan that would provide direction to the Treasury Department on how to prioritize the payment of U.S. debt should Congress and the White House fail to come to an agreement on raising the debt ceiling, according reports.
The early draft of the plan would instruct the Treasury to make only the most critical federal payments; Rep. Chip Roy (R-Texas) said House Republicans would pass the plan by the end of the first quarter of the year.
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Settling Differences Overseas
Meanwhile, U.S. Treasury Secretary Janet Yellen will meet with senior Chinese official Liu He this week to rekindle a relationship that accounts for much of the world’s economic activity but has grown tense over technology access, trade policy and Taiwan.
The pair will meet Wednesday in Zurich, where Yellen is stopping ahead of a multicountry tour through Africa that is aimed in part at countering China’s influence on the continent.
Liu, who is expected to step down from his post in March but is close to Chinese President Xi Jinping, is expected to attend the World Economic Forum in Davos, Switzerland.
The two sides arranged to meet in a third country while they are both abroad.
