In a new letter to Congress, Treasury Secretary Janet Yellen warned that the U.S. Treasury is at risk of running out of cash during the month of October. Yellen stressed that the risk is real, and the Treasury will run out of money unless Congress increases its borrowing limit.
Stating that she could not offer a “specific estimate” as to an exact time when reserves would run out, Yellen speculated based on the best and most recent information that cash and extraordinary measures would be exhausted in October.
Yellen added that the Treasury was currently funding the government by suspending other program investments (the “extraordinary measures” she referred to). These suspensions include certain investments in the Civil Service Retirement and Disability Fund, the Postal Service Retiree Health Benefits Fund and the Government Securities Investment Fund of the Federal Employees’ Retirement System Thrift Savings Plan.
“Once all available measures and cash on hand are fully exhausted, the United States of America would be unable to meet its obligations for the first time in our history,” Yellen stressed.
The government has undertaken extraordinary spending measures in the wake of the coronavirus pandemic, providing historic stimulus payments to all eligible citizens at least three times, with plans to dole out more to certain sectors like farming and agriculture. The American Rescue Plan preceded the newly passed trillion-dollar infrastructure framework, which will add to the debt ceiling. Yellen highlighted that the uncertainty in the level of corporate and individual taxes due September 15 heightened by the additional uncertainty caused by the pandemic and related economic relief only put further strain on the government’s ability to maintain its reserves.
The Treasury Secretary is calling for a raising of the debt ceiling now, as waiting until the last minute, she says, could have catastrophic effects on the economy overall and, in the short-term, raise interest rates before they are ready.
“We have learned from past debt limit impasses that waiting until the last minute to suspend or increase the debt limit can cause serious harm to business and consumer confidence, raise short term borrowing costs for taxpayers, and negatively impact the credit rating of the United States” Yellen added, referencing a still-recuperating economy that is heavily aided by suppressed interest rates.
Yellen ended the note cautioning Congress that without increased debt allowances, the U.S. could be headed for bad times — and soon. “At a time when American families, communities, and businesses are still suffering from the effects of the ongoing global pandemic, it would be particularly irresponsible to put the full faith and credit of the United States at risk.”
Thus far, financial markets have not reacted significantly to news of Yellen’s letter, and ten-year Treasury yields have remain little-changed since its release.
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Last updated: September 9, 2021