US Treasury Secretary Janet Yellen warns of potential default on public debt by June 2023

The warning comes from US Treasury Secretary Janet Yellen. The United States is getting a little closer to a potential default on its public debt after having collected less taxes than expected, thus advancing towards the moment when the country will no longer be able to meet all its obligations.

“Our estimate is that we will no longer be able to meet all of the government’s obligations at the beginning of June, and potentially as early as the 1^is June “wrote, Monday 1^is from, M^me Yellen to Republican Speaker of the House of Representatives Kevin McCarthy in a letter made public by the Treasury. This does not mean a default as of next month, but the United States, which until now had been able to avoid closing services by playing on the various accounting lines, would find itself this time in a much more precarious economic situation.

In concrete terms, the Treasury would be forced to choose between its various constrained expenditures, which could force it to severely limit some, in particular those relating to health or retirement benefits, in order to be able to continue to fulfill its obligations relating to its future maturities related to its debt.

“It is impossible to predict with certainty the exact date when the Treasury will no longer be able to pay government bills and I will continue to update Congress in the coming weeks as information becomes available”added Janet Yellen.

Joe Biden invites Kevin McCarthy to a meeting

In a statement, the Congressional Budget Service (CBO) confirmed the Treasury estimates, ruling that “To the extent that the income declaration campaign has been weaker than initially anticipated, we now believe that there is a significantly higher risk that the Treasury will no longer have the necessary funds by early June”.

The American Congress must regularly vote in order to raise the debt ceiling of the federal state, a procedure carried out 78 times since the beginning of the 1960s, most often without any particular debate.

But this year, the Republicans, who have had a slight majority in the House since the beginning of 2022, refuse to grant what they consider to be a blank check in favor of the Biden administration, and instead want a increase in this ceiling is coupled with a drastic cut in federal spending. However, the federal government reached its ceiling of 31,400 billion dollars (approximately 28,500 billion euros) in mid-January, forcing the Treasury to take a first series of measures, above all accounting, in order to remain at the level reached.

On the side of the White House, Joe Biden has repeated several times that the raising of the ceiling must be carried out unconditionally, believing that the debt was the result of the policies carried out in the past by all the administrations, from both parties. In a statement, the presidency announced that Mr. Biden called Kevin McCarthy on Monday to invite him to a meeting on Tuesday, May 9, in the presence of the main Democratic and Republican congressional officials.

“The Senate and the President must get to work, and quickly”

On April 26, the House of Representatives voted on a text proposed by Mr. McCarthy providing for a $4.5 trillion cut in federal spending over the next ten years in exchange for a $1.5 trillion ceiling increase, or a clause of review on March 31, 2024, which would therefore make the debt one of the main themes of the presidential campaign for the elections of November of the same year.

“After three months of inaction by the Biden administration, the House has acted, and legislation that would end the risk of default is waiting for the Senate to consider it as we speak”said Kevin McCarthy in a statement on Monday. “The Senate and the President must get to work, and quickly”.

But the text is unlikely to be voted on by the Senate, controlled by the Democrats by a slight majority. “It’s time to put aside partisan interests and do what’s right and necessary for the American people and avoid the first government default that would crash markets, raise costs for families and challenge their lives. savings for retirement »said Monday in a joint statement the Democratic leaders in Congress Chuck Schumer (Senate) and Hakeem Jeffries (House).

The two parties must, however, reach an agreement quickly: the current parliamentary session provides for only twelve days of debate on Capitol Hill by 1^is June. Failure “would cause an economic and financial catastrophe”had alerted Janet Yellen on April 25.