Yellen: US on track to default on national debt in October

Treasury Secretary Janet YellenJanet Louise YellenOn The Money — GOP blocks spending bill to kick off chaotic week in congress GOP blocks debt limit hike, government funding This week: Democrats hit make-or-break moment for Biden MORE on Wednesday warned congressional leaders that the U.S. is on track to default on the national debt in October if the White House and Congress are unable to raise the debt limit.

In a Wednesday letter, Yellen said that the Treasury Department would likely run out of cash and exhaust “extraordinary” measures to keep the federal government within its legal borrowing limit at some point next month. 

"Once all available measures and cash on hand are fully exhausted, the United States of America would be unable to meet its obligations for the first time in our history," Yellen said.

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“Given this uncertainty, the Treasury Department is not able to provide a specific estimate of how long the extraordinary measures will last. However, based on our best and most recent information, the most likely outcome is that cash and extraordinary measures will be exhausted during the month of October,” she continued.

Yellen wrote the letter to Speaker Nancy PelosiNancy PelosiManchin cast doubt on deal this week for .5T spending bill Obama says US 'desperately needs' Biden legislation ahead of key votes Congress shows signs of movement on stalled Biden agenda MORE (D-Calif.), House Minority Leader Kevin McCarthyKevin McCarthyHouse GOP campaign arm ties vulnerable Democrats to Biden in new ads The Hill's Morning Report - Presented by Alibaba - Democrats argue price before policy amid scramble Fifth House Republican comes out in support of bipartisan infrastructure bill MORE (R-Calif.), Senate Majority Leader Charles SchumerChuck SchumerObama says US 'desperately needs' Biden legislation ahead of key votes Congress shows signs of movement on stalled Biden agenda Schumer gets shoutout, standing ovation from crowd at Tony Awards MORE (D-N.Y.) and Senate Minority Leader Mitch McConnellAddison (Mitch) Mitchell McConnellFord to bolster electric vehicle production in multi-billion dollar push On The Money — GOP blocks spending bill to kick off chaotic week in congress Overnight Health Care — Presented by Alrtia — Booster shots get bipartisan rollout MORE (R-Ky.).

The Treasury Department has taken so-called extraordinary measures to prevent the U.S. from defaulting on the national debt since the federal debt limit was reimposed on Aug. 1. If the Treasury Department runs out of ways to stave off a default without borrowing more money, the inability of the U.S. to pay its debts could send debilitating shockwaves through the financial system.

Yellen urged lawmakers for months to raise the debt limit before it was reimposed in August, warning that a delay could "cause irreparable damage to the U.S. economy and global financial markets."

She has since pleaded with Congress to give Treasury the ability to pay debts already approved by previous presidents and congressional majorities. 

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"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," Yellen wrote.

"At a time when American families, communities, and businesses are still suffering from the effects of the ongoing global pandemic, it would be particularly irresponsible to put the full faith and credit of the United States at risk."

Even so, Democrats and Republicans are locked in a stalemate over who bears responsibility for protecting the full faith and credit of the U.S.

The White House and Democratic leaders are planning to tie a debt limit increase to another must-pass government funding bill, daring Republicans to trigger both a government shutdown and a default by opposing the measure.

“We fully expect Congress to act promptly to suspend the debt limit and protect the full faith and credit of the United States and we expect them to do that in a bipartisan way just as they did three times during the prior administration," said a White House official on Tuesday.

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But Republicans have refused to raise the debt ceiling unless spending cuts and debt reduction programs are attached.

Democrats could also try to jam a debt ceiling increase into the pending $3.5 trillion infrastructure, climate and social services bill they are attempting to pass through budget reconciliation. Passing the bill would only require simple majorities in each party, but the package may not be ready for a vote before the U.S. breaches the debt limit.

Yellen has warned for months that the U.S. could default as soon as October, explaining that the economic impact and fiscal response to the coronavirus pandemic makes it hard to determine exactly when. Earlier analyses from the nonpartisan Congressional Budget Office and the Bipartisan Policy Institute — a think tank that closely tracks the debt limit — found that the U.S may not reach a default until November.

Updated at 10:14 a.m. Morgan Chalfant contributed.