Treasury Secretary Janet Yellen warned congressional leaders Wednesday that the U.S. is on track to default on its debt sometime in October if Congress fails to raise the debt ceiling.
Yellen said the Treasury would likely run out of cash in the coming weeks and exhaust its “extraordinary” spending measures to keep the country within its legal borrowing limit.
“Once all available measures and cash on hand are fully exhausted, the United States of America would be unable to meet its obligations for the first time in our history,” Yellen wrote in a letter to Democratic and Republican leadership and the chairs and ranking members of several top committees.
“Given this uncertainty, the Treasury Department is not able to provide a specific estimate of how long the extraordinary measures will last,” she continued. “However, based on our best and most recent information, the most likely outcome is that cash and extraordinary measures will be exhausted during the month of October.” (RELATED: Congress Faces An Absolutely Brutal September Filled With High-Stakes Deadlines)
The U.S. runs the risk of defaulting if it fails to raise the debt limit, which could have catastrophic effects on the financial system. Yellen in July warned of “irreparable harm” if Congress failed to act, noting that it had raised the limit in previous years with overwhelming bipartisan support.
“Waiting until the last minute to suspend or increase the debt limit can cause serious harm to business and consumer confidence, raise short-term borrowing costs for taxpayers, and negatively impact the credit rating of the United States,” Yellen wrote. “This is why no President or Treasury Secretary of either party has ever countenanced even the suggestion of a default on any obligation of the United States.”
Congress, however, is locked in a partisan stalemate over another debt ceiling increase. Republicans have said they will not back one, with Senate Minority Leader Mitch McConnell instead telling Democrats to put it in their budget reconciliation bill that can pass with simple majority votes.
Democrats, however, have said they will not do so, and omitted an increase in the bill’s framework. While the sweeping $3.5 trillion package may not even be finalized before October, adding a multitrillion debt ceiling increase would likely make the bill even more unappealing for Democratic moderates who have already objected to the bill’s current size.
“[Raising the debt ceiling] has to happen,” House Speaker Nancy Pelosi said during her weekly press conference Wednesday. “[But] we won’t be putting it in reconciliation.”
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