The Treasury Department announced it will start taking “extraordinary measures” next week to prevent the U.S. from defaulting on its debt obligations and potentially plunging the country into an economic crisis.
In a letter addressed Friday to House Speaker Kevin McCarthy, Treasury Secretary Janet Yellen implored Congress to raise the debt ceiling and said the government will reach its borrowing limit on Thursday – the current limit is around $31.4 trillion. To avoid a default, the department will be reallocating federal funding to continue paying the government’s debts.
The department is unable to provide a precise estimate on how long the U.S. can keep paying its debts before Congress needs to raise its borrowing limit, but Yellen wrote that it is unlikely the measures “will be exhausted before early June.”
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“It is therefore critical that Congress act in a timely manner to increase or suspend the debt limit,” Yellen wrote. “Failure to meet the government’s obligations would cause irreparable harm to the U.S. economy, the livelihoods of all Americans, and global financial stability.”
Shai Akabas, director of economic policy at the Bipartisan Policy Center, said the letter does not mean it is time for panic, at least not yet.
“It is certainly a time for policy makers to begin negotiations in earnest,” said Akabas. “We’ve seen all too many times that they end up at the 11th hour with their backs against the wall and no resolution in sight. There’s plenty of time to avoid that outcome.”
The move is to cover expenses the government already has incurred, not to pay for new spending yet to be approved. Ultra conservatives on Capitol Hill have tried to use previous debt ceiling votes as leverage to exact spending concessions but have done so with little success. This time could be different given how much influence far-right Freedom Caucus members in the House now wield.
The letter is a preview of what is expected to be an intense showdown in Washington over the coming months. Congress has regularly voted to raise the debt limit to prevent the U.S. from defaulting on its debts and avert economic chaos but Republicans who captured the House have said they don’t want to approve another one without significant concessions.
McCarthy has offered a short preview of the fight to come. In his first press conference as speaker, McCarthy said Republicans are looking to negotiate spending cuts in exchange for raising the debt ceiling.
“We don’t want to put any fiscal problems on our economy and we won’t,” McCarthy said. “We’ve got to change the way we are spending money wastefully in this country and we are going to make sure that happens.”
On Friday afternoon, the White House said it has no intentions of negotiating any budget cuts to lift the debt ceiling.
“We will not be doing any negotiation over the debt ceiling,” said White House press secretary Karine Jean-Pierre. “This should be done without conditions.”
Senate Majority Leader Chuck Schumer, D-N.Y., noted that the debt ceiling was raised three times when Donald Trump was president.
“A default forced by extreme MAGA Republicans could plunge us into a deep recession, spike inflation, lead to even higher costs for working families on everything from mortgages and car loans to credit card interest rates,” Schumer tweeted Friday.
