The U.S. could run out of money to fulfill its debt obligations as soon as June 1 if Congress does not raise or suspend the debt limit, and waiting until the last minute could hurt Americans, the Treasury Department warned Congress.

President Joe Biden spent months refusing to negotiate with Republican lawmakers, citing a bipartisan tradition of raising the debt ceiling without preconditions.

However, Biden is ready to cut a deal and White House negotiators met Tuesday night with House Speaker Kevin McCarthy (R-Calif), Axios reported.

Many lawmakers don’t want to be seen as signing off on more federal borrowing or spending, NPR reported. Lawmakers also like to tack extraneous priorities onto bills that are seen as must-pass legislation, making the debt limit a prime target for political fights.

McCarthy has been in a standoff with Biden over Republican demands that would tie the debt limit to spending caps and other policy demands.

“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,” Treasury Secretary Janet Yellen said in a letter to lawmakers.

Yellen’s warning adds pressure on Biden and congressional leaders as they race to reach an agreement before thepotential June 1 debt default deadline, New York Times reported.

The Treasury Department has been using accounting moves known as extraordinary measures to keep paying the country’s bills. Those measures include moving investments and funds around. The $31.4 trillion debt ceiling was officially reached on Jan. 19.

The U.S. borrows huge sums of money by selling Treasury bonds to investors around the world and uses those funds to meet financial obligations such as paying military salaries, Social Security and Medicare benefits, and interest on the national debt. Once the U.S. hits the cap, the Treasury resorts to “extraordinary measures” — suspending some investments and exchanging different types of debt — to try to stay beneath the cap. Eventually, the U.S. must either borrow more money to pay its bills or abandon its financial obligations.

By raising the debt ceiling, the U.S. government is essentially admitting it is running a Ponzi scheme, according to economist Peter Schiff, a known opponent of debt-fueled growth policies who predicted the 2008 financial crisis.

“The U.S. Treas. Sec. has admitted the only way to avoid a default on the National Debt is to raise the #DebtCeiling so the Govt. can borrow from new lenders to repay existing lenders,” Schiff tweeted on Jan. 16. “This amounts to an official admission that the U.S. is running the world’s largest Ponzi scheme.”

House Minority Leader Hakeem Jeffries (D-N.Y.) wants every Democratic representative to support forcing a vote on lifting the debt ceiling, even over the objections of the GOP leaders who control the lower chamber. Jeffries argued that unanimity among the minority group will maximize pressure on GOP leaders to move on legislation. 

It’s unclear if all Democrats are on board for a forced vote to avoid a debt default, The Hill reported. A large majority of the 213-member caucus is likely to agree but some budget hawks may not. Even if all Democrats do sign on, they still need five Republicans to buck McCarthy — an unlikely scenario.

Images: U.S Capitol building in Washington, D.C. June 9, 2022. (AP/Patrick Semansky, File) / Dollar airlpane: Lee Cannon, https://www.flickr.com/photos/leecannon/
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