Last week, a Washington-based think tank warned of “potentially devastating economic consequences” for the US and global economies if Congress didn’t pass a debt limit extension in the weeks to come.
Treasury Secretary Steve Mnuchin has confirmed that the US could default on its obligations in as little as two months if emergency measures are not taken.
“Based on updated projections, there is a scenario in which we run out of cash in early September, before Congress reconvenes,” Mnuchin warned, in a letter addressed to Democratic House Speaker Nancy Pelosi obtained by CNBC.
“As such, I request that Congress increase the debt ceiling before Congress leaves summer recess,” Mnuchin added.
House and Senate lawmakers are expected to leave for their six-week summer break in late July, and are not expected to return to Washington until the second week of September.
Mnuchin’s admission contradicts earlier assurances by the Treasury that it would have enough money to hold out until the fall.
On Thursday, Pelosi urged lawmakers to act to raise the debt limit before the recess. A Democratic aide said cited by Bloomberg said she has already spoken to Mnuchin on the debt issue twice and will do so again over the weekend. Republican Senate Majority Leader Mitch McConnell and Minority leader Kevin McCarthy have said they agreed the debt limit needs to be raised.
Last week, the Bipartisan Policy Center, a Washington-based think tank, warned that the US risks defaulting on its debt in the first half of September, calculating that through July and August, the Treasury would continue spending on prioritised and emergency measures amid low year-on-year revenue growth, partially attributed to the 2017 Trump tax cuts.
The think tank warned that it would be “irresponsible” to ignore their forecast, “given the potentially devastating economic consequences.”
Congress slapped limits on the Federal government’s ability to borrow in March.
US federal debt reached just shy of $22 trillion in early 2019. According to estimates by the Congressional Budget Office, the debt could rise to reach between 144 and 219 percent of GDP by the year 2049 unless measures to slash the budget were not taken. The US is already the world’s largest debtor nation, with account deficits reaching around around half a trillion dollars annually, and total debt growing steadily since the 1950s, and particularly in the 1980s and after the 2008 financial crisis.
President Donald Trump criticised his predecessor Barack Obama for growing the debt during his term in office, although the debt has continued to climb by over $2 trillion so far during Trump’s tenure. On the campaign trail, Trump promised to eliminate the federal debt over two terms, which he argued could be done by getting better trade deals, but has since reportedly abandoned the pledge.