US Treasury Secretary Janet Yellen has extended the deadline for a potentially devastating default, as President Joe Biden and Republican lawmakers struggle to reach a deal on the federal borrowing cap.
“Based on the most recent available data, we now estimate that Treasury will have insufficient resources to satisfy the government’s obligations if Congress has not raised or suspended the debt limit by June 5,” Yellen wrote in a letter to lawmakers on Friday.
Biden claimed a deal seemed “very close” later on Friday, adding he was “optimistic” as he left for the Memorial Day weekend at Camp David. The sides are reportedly aiming to increase the debt limit by up to $4 trillion, which according to the Hill would be enough to push the issue further down the road until after the 2024 election.
On Monday, Yellen had warned that the US Treasury may run out of money as early as June 1, but now says her department can make it through the next weekend before it runs into trouble fulfilling obligations. Meanwhile, Goldman Sachs economists estimated the deadline to be around June 9.
“We're not done, but we're within the window of being able to perform this,” said Representative Patrick McHenry, one of the Republican negotiators seeking major concessions from the Democrats on federal spending cuts. House Speaker Kevin McCarthy previously stated his party would like next year’s budget to be smaller than 2023’s.
The debt ceiling, which is set by Congress and currently stands at $31.4 trillion, represents the maximum amount the federal government can borrow to pay its debts. The US Treasury is running out of cash after the national debt hit that cap in January.
If no agreement is reached in time and the US defaults even on some of its bills, it could trigger a market crash and damage confidence in the dollar over the longer term, according to renowned economist and New York University professor Nouriel Roubini, who predicted the 2008 financial crisis and was nicknamed ‘Doctor Doom’ by Wall Street.
One senior Russian lawmaker suggested the US federal debt was a global pyramid scheme built by Washington to “defraud other nations,” saying it is now headed for an inevitable collapse. “History has shown that all pyramid schemes eventually fail,” Vyacheslav Volodin, who serves as chairman of Russia’s lower house of parliament, said in a Telegram post on Friday.