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What happens if the U.S. runs out of money?
03:40 - Source: CNN
CNN  — 

Treasury Secretary Janet Yellen reinforced her warning to Congress that it has only a little time left to address the debt ceiling before the nation defaults on its obligations.

It is “highly likely” that the agency will not be able to pay all of its bills in full and on time as soon as June 1, Yellen wrote in a letter to House Speaker Kevin McCarthy on Monday.

“With an additional week of information now available, I am writing to note that we estimate that it is highly likely that Treasury will 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 wrote.

More on the debt ceiling

  • Five ways a debt default could affect you
  • Get up to speed on the US debt drama
  • How the 14th Amendment factors into the debt ceiling debate
  • If US defaults on its debt, Treasury would have to decide how to pay the bills
  • Here’s how we know a US default would be an economic disaster

  • Yellen’s latest missive to Congress comes as White House and House GOP negotiators continue trying to hammer out a deal before the so-called X-date, when the nation would default.

    McCarthy, who is scheduled to meet with President Joe Biden on Monday, said “nothing is agreed to,” though there have been some good discussions. Among the sticking points is the depth of spending cuts.

    The speaker said that the package has to come together this week for the House to pass it and move it to the Senate.

    Yellen has spent much of May laying out the seriousness of a potential default, which would be a first for the US. She has said it could unleash a global economic recession and financial upheaval, as well as hurt millions of Americans who rely on federal government payments, including Social Security recipients, federal workers and Medicare providers.

    A little more time?

    Several other analyses back up Yellen’s forecast that the X-date could arrive in early June, though they don’t necessarily think it’s as early as June 1.

    “Our projections show Treasury able to get to June 14 before exhausting its cash, but there is no room for error and this date can change,” Nancy Vanden Houten, lead US economist for Oxford Economics, wrote in a report Monday.

    Meanwhile, Goldman Sachs on Friday said the agency faces “clear risk of missing payments” on June 8 or June 9.

    Wells Fargo analysts said they are a bit more optimistic than Yellen that Treasury could get to June 15. The secretary has said that the odds are “quite low.”

    But they added that their confidence has been shaken by earlier forecast misses that underestimated the need for financing and the size of budget deficits. They noted that even in the best-case scenario, Treasury will not have a lot of funds on hand in the first half of next month.

    “Put another way, a fifty-fifty chance of an early June default in the absence of a debt ceiling increase is still very concerning and highlights the clear risk of hitting the X date in early June,” they wrote in a note.

    If Treasury can continue paying the bills into the middle of next month, then it’s likely the government won’t default until later in the summer. The agency will get another injection of funds from second quarter estimated tax payments, which are due June 15, and from $145 billion in an “extraordinary measure” that becomes available at the end of that month.

    Treasury had $60.7 billion in cash on hand as of Friday, according to federal data. The amount bounces around as the agency takes in revenue and makes payments, but the balance has declined from $238.5 billion at the start of the month, when the coffers were relatively flush from tax collections in April.

    Ever since the US hit its borrowing cap in January, Treasury has been forced to rely on cash and extraordinary measures to pay the bills until Congress addresses the debt ceiling. The agency had about $92 billion remaining in extraordinary measures as of Wednesday, down from around $220 billion at the end of January.

    This headline and story have been updated with additional information.