Yellen Warns Congress Treasury May Run Out of Cash Past Dec. 15
(Bloomberg) -- Treasury Secretary Janet Yellen indicated to lawmakers that they risked a U.S. government default if they failed to lift the legal debt ceiling by Dec. 15.
“While I have a high degree of confidence that Treasury will be able to finance the U.S. government through Dec. 15,” Yellen wrote Tuesday in a letter to congressional leaders, “there are scenarios in which Treasury would be left with insufficient remaining resources to continue to finance the operations of the U.S. government beyond this date.”
Yellen made clear in her letter the new deadline is tied to payment obligations created by the $550 billion infrastructure bill signed into law by President Joe Biden on Monday. That will require the Treasury to transfer $118 billion to the Highway Trust Fund within one month of the law’s enactment, which would be Dec. 15.
The Treasury has since last month been using so-called extraordinary measures to help avoid running out of cash. The department said earlier this month that it had used up $182 billion of around $369 billion in cash made available through such measures.
Lawmakers enacted a short-term boost to the debt limit last month, aiming to give enough space to coincide with a separate deadline, of Dec. 3, for regular annual funding of federal government agencies.
At that time, Yellen said the legislation would allow the government to keep paying its bills through Dec. 3. The dates were subject to change based on the Treasury Department’s flows of spending and revenue.
Congressional leaders have yet to specify a plan for how they will address the ceiling in coming weeks.
A handful of Senate Republicans voted to let Democrats proceed with the $480 billion, short-term boost to the limit in October, which ultimately passed on a party-line basis. But they have vowed they won’t cooperate on any future increase. Senate GOP leader Mitch McConnell is pushing for Democrats to boost the ceiling on their own using the reconciliation process, which bypasses the Senate filibuster and thus the need for Republican support.
Majority Leader Chuck Schumer has resisted going that route, arguing that raising the debt ceiling should be a bipartisan action as it was during the Trump administration.
“We are focused on doing this in a bipartisan way,” Schumer said Tuesday.
But other Democrats have expressed openness to going alone.
While Yellen has repeatedly called for a bipartisan vote to address the debt limit, she has also suggested in recent weeks that Democrats will consider raising the limit on their own through reconciliation.
“I strongly believe that it is a bipartisan responsibility to do this,” Yellen said on Nov. 1. “There is a way for Democrats to do it entirely on their own,” she added, “and I know that will be one of the ways -- through reconciliation -- that the leadership will be considering.”
Senate Budget Chair Bernie Sanders of Vermont chastised Republicans, saying they “understand that it would be unbelievably irresponsible to hurl the entire world economy into chaos by not paying the debts that were incurred under the Trump administration.”
But he hasn’t ruled out using reconciliation. “We’ll look at all the options,” he said.
McConnell on Tuesday said he wasn’t concerned about the looming deadline.
“We’ll figure out how to avoid default,” he said. “We always do.”
Should the Treasury run out of cash, the U.S. government would default on its financial obligations. Yellen has warned that federal contractors and employees would go unpaid and Social Security checks would stop, among other things. Unless their payments were prioritized, investors in Treasury securities wouldn’t receive interest payments or get back their principal on maturing bills, notes and bonds.
Yellen, Federal Reserve Chair Jerome Powell and many economists have warned that even a temporary default could send credit markets into chaos, increase U.S. borrowing costs for an extended period and damage U.S. credibility throughout the world. Yellen has repeatedly said that a recession would be in store.
Meantime, Congress is also facing a deadline in coming weeks to prevent a federal government shutdown. Agencies have been funded via a stopgap temporary appropriations bill since the Oct. 1 start of the fiscal year, and another so-called continuing resolution is likely after the expiration of that bill on Dec. 3.
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