The US government could run out of cash and be forced to default on its debt if lawmakers fail to raise the debt ceiling by Dec. 15, Treasury Secretary Janet Yellen warned Tuesday.
“To ensure the full faith and credit of the United States, it is critical that Congress raise or suspend the debt limit as soon as possible,” she wrote Tuesday in a letter to Congressional leaders.
“While I have a high degree of confidence that Treasury will be able to finance the US government through December 15 and complete the Highway Trust Fund investment, there are scenarios in which Treasury would be left with insufficient remaining resources to continue to finance the operations of the US government beyond this date,” she added.
The Dec. 15 deadline is about two weeks later than Yellen’s initial estimate that a debt-limit increase passed by Congress in October would ensure the government is able to pay its bill through Dec. 3.
Yellen explained that the new deadline comes as a result of the $1 trillion infrastructure agenda, which was signed into law by President Joe Biden on Monday.
The law will require the Treasury to transfer $118 billion to the Highway Trust Fund by Dec. 15, Yellen said.
Congress enacted a short-term increase to the debt ceiling in October, ushering it through the process largely along party lines. Since then, the Treasury has been using so-called extraordinary measures to preserve cash.
Many Republicans have said they won’t cooperate on any effort to raise the debt ceiling come December, saying that the US needs to reign in its out-of-control spending.
If the debt ceiling isn’t raised, the Treasury would likely be forced to prioritize certain payments like Social Security. The cutting of certain programs would likely fall disproportionately on the elderly and poor.
Raising the debt limit would not authorize any new spending, but rather let the government issue new debt to pay for existing obligations.
Yellen has insisted that a US default, in which the Treasury delays interest payments on debt, could devalue the US Dollar and launch the country as well as the world into a major recession.
Congress nonetheless has a number of other burdensome items, including passing Biden’s $1.8 trillion American Families Plan, that it must address before grappling with the debt ceiling.