US debt ceiling to be hit by June 1 as US Treasury Secretary Janet Yellen demands action

The US is on the brink of a “catastrophic” crisis, with the government on track to run out of money to pay its bills. Find out how long Joe Biden has to fix it.

The US government is on track to run out of money to pay its bills by June 1, putting the economy on the brink of a “catastrophic” crisis that would have global consequences.

US Treasury Secretary Janet Yellen is now demanding Congress take urgent action to lift the nation’s $US31.4 trillion ($A47.3 trillion) debt ceiling before the world’s biggest economy defaults on its debts for the first time in history.

The so-called X-date – when the US is expected to be short on cash to meet its obligations – has been looming in the middle of the year amid a standoff between US President Joe Biden and House Republicans over raising the debt limit.

But Ms Yellen, in a letter to House Republican Speaker Kevin McCarthy on Tuesday, revealed crunch time could come as early as June 1.

Australian Treasurer Jim Chalmers meets with US Treasury Secretary Janet Yellen in Washington DC earlier this year. Picture: Supplied

“Given the current projections, it is imperative that Congress act as soon as possible to increase or suspend the debt limit in a way that provides longer term certainty that the government will continue to make its payments,” she said.

“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.”

“If Congress fails to increase the debt limit, it would cause severe hardship to American families, harm our global leadership position, and raise questions about our ability to defend our national security interests.”

President Joe Biden shakes hands with US House Speaker Kevin McCarthy after his State of the Union address in February. Picture: AFP

Last week, Mr McCarthy and his House colleagues passed a Bill to lift the US debt ceiling while making deep cuts in government spending, including by ripping up Mr Biden’s clean energy initiatives, blocking student loan relief and expanding work requirements for taxpayer-funded support payments.

Mr McCarthy said it was now up to Mr Biden to negotiate – the pair have not met since early February – but the President has refused to negotiate on any budget decisions if they were tied to lifting the limit, a position he reiterated on Tuesday.

He invited Mr McCarthy and other congressional leaders to meet at the White House next week.

The US technically hit the debt ceiling in January, meaning Ms Yellen has since had to implement extraordinary accounting measures to continue paying the government’s bills.

In the last debt limit standoff in 2011, the US lost its prized AAA credit rating and the markets crashed even though a default was avoided.

Moody’s Analytics chief economist Mark Zandi recently told Congress that a default would be “a catastrophic blow to the already fragile economy”, which is already on the brink of a painful recession.

“Americans would likely pay for this default for generations,” he warned.

Originally published as US debt ceiling to be hit by June 1 as US Treasury Secretary Janet Yellen demands action