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US on track for June 1 debt default, Treasury Secretary Yellen warns

This picture shows US Treasury Secretary Janet Yellen testifying before the Senate Finance Committee on Capitol Hill in Washington, DC, March 16, 2023. (Photo by Reuters)

US Treasury Secretary Janet Yellen has warned once more that the United States is on track for default in June if the opposing Republican lawmakers do not approve the proposed budget bill hinged on debt increase and decrease in public spending.

It is likely that the US could default on its obligations early next month – possibly as soon as June 1 – if Congress doesn’t act, Treasury Secretary Janet Yellen warned again on Monday.

Yellen wrote to Republican House Speaker Kevin McCarthy and other top GOP lawmakers in the US Congress, “With additional information now available, I am writing to note that we still estimate that Treasury will likely no longer be able to satisfy all of the government’s obligations if Congress has not acted to raise or suspend the debt limit by early June, and potentially as early as June 1.”

She added that the exact date of the default, or the X-Date, which will happen when the government no longer has enough cash to pay for its debts, depended on its credits and debits balance, or in other words how much revenue the federal government collects and how much it has to pay out in coming days or weeks.

An October report from the White House Council of Economic Advisors warned that the possible impact of a US default could be a downgrading of US debt by a credit-rating agency followed by a worldwide recession, worldwide frozen credit markets and plunging stock markets, in addition to mass worldwide layoffs.

Similarly, Deutsche Bank US senior economist Brett Ryan sounded the alarm about a potential US default.

“If you did ride over this cliff and the government were to technically default, that would be a major problem. It would cause a global crisis,” he said in bleak remarks echoing what others said.

There is general consensus by economists across the globe that if the US goes into default, what is left of US credit and trust will be lost, and the already fragile US economy will fall into an endless abyss.

However, a Republican heavyweight, former US President Donald Trump, recently dismissed what Yellen and her economic advisers have been warning about the dire consequences of a global economic crisis in case of a US default.

Speaking at the CNN town hall last week, Trump advised Republican lawmakers negotiating on the budget bill with the Democratic administration not to approve it until the White House agrees to cut public spending.

“If they don’t give you massive cuts, you’re gonna have to do a default.”

Trump said the impact of a US debt default is temporary, and not as clear-cut as the economists claim. “It could be really bad, it could be maybe nothing. Maybe it’s a bad week or a bad day. Who knows?”

After Trump's remarks, Democratic US President Joe Biden said he too was not worried about a default crisis because he still believed that every cloud has a silver lining.

“I remain optimistic because I’m a congenital optimist,” Biden said in a remark playing down the seriousness of the looming US default.

McCarthy, however, did not share Biden's light feelings on the matter and seemed to be a pessimist in this regard. “I still think we’re far apart,” McCarthy told NBC News. “It doesn’t seem to me yet that they want a deal.”

GOP leaders link the proposed increase of Democrats in the government's debt ceiling to the White House's slashing of public spending, hinging their approval of the government's whopping $31.4 trillion debt ceiling to big spending cuts.

Republicans say they remain adamant on their push to force the Biden administration to give in on their proposed budget cuts.

The White House and congressional Democrats have likened the Republican’s deal to hostage-taking, saying the debt ceiling increase should have no strings attached to it.

According to the Biden administration, when the government runs out of money in June it will be unable to issue payments to its employees, the military’s families, seniors and others dependent on the government for their livelihood, including National Park rangers and firefighters.

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