Yellen warns of U.S. default risk by early June, urges debt limit hike


WASHINGTON, Jan 13 (Reuters) – U.S. Treasury Secretary Janet Yellen said on Friday that the United States will likely hit the $31.4 trillion statutory debt limit on Jan. 19, forcing the Treasury to launch extraordinary cash management measures that can likely prevent default until early June.

“Once the limit is reached, Treasury will need to start taking certain extraordinary measures to prevent the United States from defaulting on its obligations,” Yellen said in a letter to new Republican House of Representatives Speaker Kevin McCarthy and other congressional leaders.

She urged the lawmakers to act quickly to raise the debt ceiling to “protect the full faith and credit of the United States.

“While Treasury is not currently able to provide an estimate of how long extraordinary measures will enable us to continue to pay the government’s obligations, it is unlikely that cash and extraordinary measures will be exhausted before early June,” the letter added.

Republicans now in control of the House have threatened to use the debt ceiling as leverage to demand spending cuts from Democrats and the Biden administration. This has raised concerns in Washington and on Wall Street about a bruising fight over the debt ceiling this year that could be at least as disruptive as the protracted battle of 2011, which prompted a brief downgrade of the U.S. credit rating and years of forced domestic and military spending cuts.

The Washington Post reported late on Friday that House Republicans had prepared an emergency plan for breaching the debt limit. The proposal, which was in the preliminary stages of being drafted, would direct the Treasury Department to prioritize certain payments if the U.S. hits the debt ceiling, according to the newspaper.

The White House said on Friday after Yellen’s letter that it will not negotiate over raising the debt ceiling.

“This should be done without conditions,” White House spokesperson Karine Jean-Pierre told reporters. “There’s going to be no negotiation over it.”

The proposal from House Republicans reported by the Washington Post would call on the Biden administration to make only the most critical federal payments if the Treasury Department comes up against the statutory limit on what it can legally borrow. The plan will call on the department to keep making interest payments on the debt, the newspaper reported, citing sources.

House Republicans’ payment prioritization plan may also stipulate that the Treasury Department should continue making payments on Social Security, Medicare and veterans benefits, as well as funding the military, the newspaper added.

The plan was part of the private deal reached this month to resolve the standoff between right-wing hardliners in the House and conservative McCarthy over the election of House speaker, the Washington Post said.

Yellen’s estimate expressing confidence that the government could pay its bills only through early June without increasing the limit marks a deadline considerably sooner than forecasts by some outside budget analysts that the government would exhaust its cash and borrowing capacity – the so called “X Date” – sometime in the third quarter of calendar 2023.

Analysts…



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