WASHINGTON — Treasury Secretary Janet Yellen is telling Congress that the Treasury Department will likely exhaust all of its “extraordinary measures” to avoid an unprecedented default on the government's obligations by Oct. 18.
Yellen warned Congress three weeks ago that the Treasury would run out of maneuvering room by mid-October. In a Tuesday letter, she said economists were able to issue a specific date based on the amount of revenue the U.S. had received in September from corporate and private quarterly tax payments.
Yellen’s letter arrived the day after Senate Republicans blocked consideration of a bill to deal with the debt limit and approve a stopgap funding bill to avert a government shutdown Friday. The expectation is that Democrats will remove the increase in the debt limit and just seek to pass the stop-gap spending bill to avoid a government shutdown.
In her letter, Yellen said, “We now expect that Treasury is likely to exhaust its extraordinary measures if Congress has not acted to raise or suspend the debt limit by Oct. 18. At that point, we expect Treasury would be left with very limited resources that would be depleted quickly.”
Yellen said it was uncertain whether Treasury could meet all of the nation's commitments after that date.
As she has done in the past, Yellen urged Congress to “protect the full faith and credit of the United States by acting as soon as possible” to either raise the debt limit or suspend it.
While the nation has never defaulted on its debts, Yellen said that waiting until the last minute to take action would not be wise. In a budget standoff between Republicans and the Obama administration in 2011, the credit rating agency Standard & Poor's downgraded a portion of Treasury's sterling AAA credit rating for the first time in history, citing the uncertainty caused by the standoff.
“We know from previous debt limit impasses that waiting until the last minute can cause serious harm to business and consumer confidence, raising borrowing costs for taxpayers and negatively impact the credit rating of the United States for years to come,” Yellen said.
“Failure to act promptly could also result in substantial disruptions to financial markets, as heightened uncertainty can exacerbate volatility and erode investor confidence,” Yellen said in her letter to Congressional leaders.