US Treasury fears it will run out of cash by June 5, extends debt default deadline

US Treasury Secretary Janet Yellen on Friday (May 26) updated the debt default deadline to June 5 from June 1, as she feared that the treasury may run out of cash. She warned of a possible US debt default if Congress fails to raise the ceiling on borrowing.

In a letter to the Republican speaker of the House of Representatives, Kevin McCarthy, Yellen said, "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 stated that the United States is likely to run out of money to clear its bills by June 5.

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The recent estimation has provided some breathing room since the Treasury Department has pushed back the date when the government's money will run out.

However, Yellen warned that the deadline extension does not change the urgency to end the standoff in Congress.

America stands on the verge of default if the government does not agree to raise the borrowing limit from its current 31.4 trillion dollars in order to maintain paying the nation's debts.

Republicans say President Joe Biden must sign up for spending cuts in exchange for their support to raise the debt ceiling, ignoring repeated Democratic calls for a "clean" increase of the borrowing limit with no strings attached.

And if at all the deal gets finalised, it must pass both chambers of Congress and therefore hinges on bipartisan support. Republicans control the House 222-213, while Democrats hold the Senate 51-49.

Notably, there were glimmers of hope as unconfirmed US media reports stated that a compromise in the works would involve an agreement to extend the government's borrowing authorisation for two years, ensuring that the present drama does not repeat itself before the presidential election in 2024.

Meanwhile, McCarthy told reporters that negotiators had "made progress", but he also added: "Nothing is agreed to until it's all agreed to."

If Congress failsto raise its self-imposed debt ceiling before the deadline, it might result in a default, causing financial markets to tremble and sending the nation into a deep recession.

In a recent development, the International Monetary Fund on Friday (May 26) said that the US interest rates will likely need to remain higher for longer to tame inflation, and Washington needs to tighten fiscal policy to bring down its federal debt.

Default would harmmilitary

Top US officer General Mark Milley said on Thursday that a US government default would harm the country's military, hitting readiness and morale. The chairman of the Joint Chiefs of Staff told journalists at the Pentagon that "there would be a very significant negative impact on the readiness, morale and capabilities of United States military if we defaulted" as well as "reputational damage internationally."

(With inputs from agencies)

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