WASHINGTON – US Treasury Secretary Janet Yellen on Friday updated the date for a possible US debt default to June 5 if Congress fails to raise the ceiling on borrowing, pushing back a previous estimate of June 1.
This gives negotiators for President Joe Biden and House Republican Speaker Kevin McCarthy a little breathing room as they work to find a bipartisan solution to lift the current spending cap, known as the debt ceiling.
But though murmurs of a possible deal have grown in recent days, no agreement has yet materialised as lawmakers head into the long Memorial Day weekend.
With each day that passes, the chance of the United States stumbling into a scenario where it cannot pay all its existing bills – known as the “X-date” – is increasing.
‘Hard choices to make’
In mid-January, the US federal government reached its borrowing cap of more than US$31 trillion (S$41.9 trillion). Since then, it has used special accounting measures to extend the life of the money it is allowed to spend without raising the borrowing limit.
But it can only do so for so long before it runs up against the debt ceiling. At that point – currently June 5 – it will only be able to spend what it brings in through taxes.
Between June 1 and June 15, the Treasury Department will have a funding shortfall of more than US$100 billion, according to Treasury data analysis by the Bipartisan Policy Centre think tank.
If the United States hits the debt ceiling, “there will be hard choices to make about what bills go unpaid,” Ms Yellen said recently.
With both parties to the negotiations insisting the United States will not default on its debts, that leaves government spending as the place where these hard decisions will have to be made.
Treasury could choose to defer certain payments for Social Security, Medicare and Medicaid programs, which help tens of millions of people with pension and healthcare costs.
Alternatively, it could pause some payments across the board, which would lessen the impact on Social Security and healthcare recipients, but increase the number of government services affected.