US Treasury Secretary Janet Yellen warned of severe consequences if Congress fails to agree on raising the debt ceiling.
Janet Yellen said that the US could run out of cash in early June if the federal government fails to increase the amount of borrowing.
Yellen stated that in such a situation, the government will not be able to pay salaries and social benefits and will not be able to pay for other items and said, “It is Congress’ job to do this. If they fail, we will have an economic and financial disaster on our hands.”
The debt ceiling, or debt limit, is the upper limit on the amount of money the US government can borrow.
Yellen said debt ceiling negotiations “should not be done at the point of a gun to the head of the American people,” adding, “But time is running out for compromise.”
US President Joe Biden will meet with Republican leaders tomorrow to ask them to agree to raise the debt ceiling, which currently stands at $31.4 trillion.
Congress generally imposes certain conditions on the budget and public spending when raising the debt ceiling.
Last month, the US House of Representatives passed a bill to increase the borrowing limit.
The bill, submitted by the Republicans, who hold the majority in the House of Representatives, includes significant cuts in public spending over the next 10 years.
This regulation is unlikely to pass the Senate controlled by Democrats.
President Joe Biden is demanding that the debt ceiling be raised without any conditions.
Biden says he will not negotiate on raising the ceiling and that possible cuts in public spending can be discussed after this issue is resolved.
The Biden administration is examining whether the constitution allows the debt ceiling to be raised without the need for Congressional approval.
Yellen pointed out that the lack of an agreement between Republicans and Democrats ‘could result in a constitutional crisis’
“We should not get to a point where the president raises the debt ceiling himself,” Yellen said.
The US debt ceiling has been raised or changed 78 times since 1960.
Each time, the possibility of a US default reconciled the parties.
So far, the US has never defaulted. Such a development would upset global financial markets and have profound economic implications.
In a letter sent to Congress last week, Yellen warned that leaving the decision to the last minute would also have negative effects, warning that consumer confidence could be shaken, taxpayers’ short-term borrowing costs could increase and the US credit rating could be affected.