The US Treasury has informed law makers that the country is likely to exhaust measures to keep funding the government on October 18, and will run out of cash unless Congress raises the federal borrowing cap, treasury secretary Janet Yellen warned.
After the date, “Treasury would be left with very limited resources that would be depleted quickly. It is uncertain whether we could continue to meet all the nation’s commitments after that date,” she said in a letter to congressional leaders.
Republicans in the US Senate have stubbornly refused to support an increase or suspension of the debt ceiling, despite having pressed for it under their party’s former president Donald Trump.
On Monday, they blocked a Democratic effort to approve a 14-month suspension together with a temporary budget.
Yellen repeated her call in her appearance before the Senate Banking Committee.
“It is imperative that Congress swiftly addresses the debt limit. If it does not, America would default for the first time in history,” Yellen said in her prepared testimony.
The House passed a measure last week to keep the government open until December 3 while they continue debate on a major 10-year social spending package, but the evenly-divided Senate has thus far rejected beginning debate on the bill.
Without an increase, the government would be unable to pay salaries of public workers, send payments to retirees, or service the nation’s debt.
Raising the debt limit does not increase spending, but simply allows Treasury to finance projects already approved by Congress, including trillions of dollars in aid rolled out during the Covid-19 pandemic.
Yellen warned Congress that refusal to raise the debt limit of the country would result in “a catastrophic event for our economy.”
Federal Reserve chair Jerome Powell, who also is testifying at the hearing, also has warned of dire consequences, as have a series of former treasury secretaries and business groups.
Under Trump, the ceiling was suspended for two years on a bipartisan basis after McConnell at the time argued that failing to do so “would be a disaster.”
The cap was reinstated on August 1 with the country’s debt at $28.4 trillion.