US Government Warns of Possible Economic Catastrophe as Debt Ceiling Deadline Approaches
The United States could run out of money to pay its bills as early as June 1 if Congress fails to raise or suspend the debt ceiling, according to Treasury Secretary Janet Yellen.[0] This warning comes earlier than previously thought and has prompted President Joe Biden to call on congressional leaders to discuss the issue.[1] However, House Republicans have demanded significant spending cuts and the reversal of some of Biden's policies in exchange for votes to raise the debt ceiling, leading to objections from Democrats and a potential stalemate.
Yellen has stressed the urgency of avoiding a default, warning that a “protracted default” could lead to severe damage to the economy, with job losses numbering in the millions, a plunge in GDP, and a crash in the stock market. It would also impact financial markets, hurt investments, and raise loan rates and credit card payments, as well as potentially stopping payments on Social Security and military salaries.[2]
While Yellen acknowledged that the date is subject to change and could be weeks later than projected, she predicted that the government could run short of cash by early June based on April tax receipts and current spending levels.[3] She warned that there are no good options for avoiding the chaos that would happen if Congress doesn't raise the debt ceiling, and resorting to the 14th Amendment to avoid a default would provoke a constitutional crisis.[4]
Biden has emphasized that it is Congress's job to raise the debt ceiling and enable the government to pay its bills, and that there is no action that he or the Treasury can take to prevent an economic and financial catastrophe if Congress fails to act. He has invited congressional leaders of both parties to the White House to discuss the issue, but the sides are nowhere close to a deal.[5]
In a short default, the economy would suffer the loss of about half a million jobs and the unemployment rate would rise by 0.3 percentage points, according to a report by the White House Council of Economic Advisors. In the worst-case scenario of a protracted default, the country would lose 8.3 million jobs and unemployment would rise by 5%.
The debt ceiling has been raised 78 times since 1960, and Yellen and Biden have stressed the urgency of avoiding a default and the potentially catastrophic consequences of failing to raise or suspend the debt ceiling. However, House Republicans have demanded significant spending cuts and policy reversals in exchange for votes to raise the debt ceiling, leading to objections from Democrats and a potential stalemate.
0. “Yellen warns the U.S. could default by June 1 if the debt ceiling is not raised” Kitco NEWS, 1 May. 2023, https://www.kitco.com/news/2023-05-01/Yellen-warns-the-U-S-could-default-by-June-1-if-the-debt-ceiling-is-not-raised.html
1. “Yellen Says No Good Alternative to Congress Lifting Debt Cap” Yahoo Finance, 7 May. 2023, https://finance.yahoo.com/news/yellen-says-no-good-option-134540786.html
2. “Debt ceiling: GOP lawmakers reject short-term debt limit increase” USA TODAY, 4 May. 2023, https://www.usatoday.com/story/news/politics/2023/05/04/debt-ceiling-gop-debt-limit-increase/70179973007/
3. “Yellen says White House needs Congress to avoid debt default” The Washington Post, 7 May. 2023, https://www.washingtonpost.com/politics/2023/05/07/yellen-gop-biden-debt-ceiling/
4. “No good options if Congress fails to raise the debt limit, Yellen says” POLITICO, 7 May. 2023, https://www.politico.com/news/2023/05/07/janet-yellen-debt-ceiling-biden-00095688
5. “A debt limit breach could be like a government shutdown — but much worse” The Boston Globe, 5 May. 2023, https://www.bostonglobe.com/2023/05/05/nation/debt-limit-breach-could-be-like-government-shutdown-steroids/
