Treasury Reiterates Warning US Government Could Run Out of Money to Service Debt By October

The US government could run out of money as early as next month to service its debt, Treasury Secretary Janet Yellen said on Wednesday, reiterating her warning that emergency measures put in place to raise cash could be exhausted soon.

“Given this uncertainty, the Treasury Department is not able to provide a specific estimate of how long the extraordinary measures will last,” Yellen said in a copy of her letter to Pelosi, released by the department. “However, based on our best and most recent information, the most likely outcome is that cash and extraordinary measures will be exhausted during the month of October.”

Yellen announced in August that the Treasury Department was suspending fully or partly investments in the Civil Service Retirement and Disability Fund, the Postal Service Retiree Health Benefits Fund, and a section of the Federal Employees Retirement to free up funds to service the national debt.

These were flexible investments that could be made in due course, and other US treasury secretaries have also suspended them as well in times of emergency, she said.

“Our estimates of the period of time that extraordinary measures will last have been refined in recent weeks, although they continue to be subject to considerable uncertainty due to the normal challenges of forecasting the payments and receipts of the US government, including the uncertainty in the level of corporate and individual taxes due September 15, heightened by the additional uncertainty due to the pandemic and related economic relief, and other factors,” Yellen said. “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”.

Negotiations on the debt ceiling between Democrat lawmakers led by President Joe Biden and their Republican rivals have dragged on for months, with no immediate solution in sight. Democrats and Republicans have squared off over the debt ceiling several times over the past decade and briefly allowed the United States to surpass it during the Trump administration.

“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 said.

She urged Congress to protect “the full faith and credit” of the United States by acting as soon as possible.

The secretary warned in July that the United States faced a default risk on its debt by October as the deadline for the two-year suspension of its debt limit neared. In her latest update, she wrote to US House Speaker Nancy Pelosi that there was “considerable uncertainty” on how long the Biden administration could continue stretching its debt obligations at the current rate.