Yellen Shifts Debt Default Date To June 5

Treasury Secretary Janet Yellen has extended the probable date that the U.S. will default on its sovereign debt payments absent legislation from Congress to raise the debt ceiling, according to a letter she wrote on Friday.

Yellen’s letter, addressed to House Speaker Kevin McCarthy, says that the Treasury now estimates the U.S. will default on its debt on June 5 unless a bill to raise the debt ceiling is passed, which is currently being negotiated between President Joe Biden and McCarthy. The new date is a revision from her earlier estimation of June 1 as the default date, per a letter she sent McCarthy on May 1.

“Treasury is scheduled to make an estimated $92 billion of payments and transfers” during the week of June 5, Yellen wrote, stating that “our projected resources would be inadequate to satisfy all of these obligations.” As of Thursday, the Treasury’s general account, the central source of daily U.S. Government expenditures, has just $38.8 Billion remaining to fund the federal government, according to the Daily Treasury Statement, which Yellen described as an “extremely low level of remaining resources.”

McCarthy and Biden’s representatives remain embroiled in heated negotiations over a deal to raise or suspend the debt limit, with House Republicans insisting that any increase must be accompanied by deep spending cuts and policy concessions that Democrats have resisted. Even as Congress has left Washington, D.C. for Memorial Day weekend, negotiations have continued to reach a deal before a default, which experts predict will have catastrophic effects on the global economy.

A key party in negotiations is the House Freedom Caucus, a group of fiscal conservatives who seek significant spending cuts passed by the House in the Limit, Save, Grow Act in April, which was McCarthy’s debt limit proposal that Biden and Senate Democrats have rejected. On Thursday, they reiterated their demand for “no further discussion” on a deal and insisted that McCarthy force Democrats to accept the act.

The caucus has also been strongly critical of Yellen for her initial projection of a default on June 1, accusing her of being disingenuous. In their demand letter, they claimed Yellen was being “manipulative” and that her credibility was beset by “spectacular failures,” while also insisting that the Treasury Department “immediately furnish a complete justification of the June 1 projection.”

Yellen’s deputy, Wally Adeyemo, announced that Biden would not seek to invoke the 14th Amendment to the U.S. Constitution to unilaterally pay U.S. debt obligations if a deal cannot be reached. That proposal, which had been supported by some Democrats, was widely criticized, including by Yellen herself.

Speaking at the Capitol on Thursday evening, McCarthy said: “We do not have an agreement yet. It’s hard, but we’re working and we’re going to continue to work until we get this done.”

McCarthy and members of the Freedom Caucus did not immediately respond to a request for comment.

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