Legal
U.S. Treasury Secretary Janet Yellen has insisted that the U.S. could default on its debt obligations on June 1. “I think that’s a hard deadline,” she stressed. Meanwhile, global investment bank Goldman Sachs has estimated that the “real deadline” for a possible U.S. default is “more like” June 8-9.
Yellen and Goldman Sachs on U.S. Default, Debt Ceiling
U.S. Treasury Secretary Janet Yellen reiterated her concerns about a possible U.S. default on NBC’s “Meet the Press” Sunday. Responding to a question about the June 1 deadline for a possible U.S. default, she said:
I indicated in my last letter to Congress that we expect to be unable to pay all of our bills in early June and possibly as soon as June 1. And I will continue to update Congress, but I certainly haven’t changed my assessment. So I think that’s a hard deadline.
However, the U.S. government is expecting some tax payments on June 15 which would provide some revenue. When asked about the likelihood the U.S. could get to June 15 “to avoid breaching the debt ceiling,” Yellen said: “There’s always uncertainty about tax receipts and spending. And so it’s hard to be absolutely certain about this, but my assessment is that the odds of reaching June 15th, while being able to pay all of our bills, is quite low.”
Commenting on “extraordinary measures” that President Joe Biden could take to resolve the debt ceiling issue in Congress, Yellen said: “There has been much discussion of the 14th Amendment. And, as President Biden said … it doesn’t seem like something that could be appropriately used in these circumstances, given the legal uncertainty around it, and given the tight timeframe we’re on. So my devout hope is that Congress will raise the debt ceiling.”
Yellen noted:
My assumption is that if the debt ceiling isn’t raised, there will be hard choices to make about what bills go unpaid.
Global investment bank Goldman Sachs, however, predicts that the U.S. could default on its debt obligations approximately one week after June 1. Alec Phillips, Goldman Sachs’ chief political economist, told Bloomberg TV on Friday: “The reality is that Congress has to do this at some point very soon, and they should just go ahead and do it … So waiting for the last minute isn’t necessarily the right move, even though we think that maybe they could go a little bit longer.”
The Goldman Sachs economist shared:
Our guess right now is that the real deadline is probably more like June 8th, 9th, that’s when they’re at sort of greatest risk.
The Congressional Budget Office (CBO) recently said that there is a significant risk of the U.S. defaulting in the first two weeks of June.
Many people have warned that the U.S. defaulting on its debt obligations will have catastrophic consequences, including a global financial crisis. Top executives of 146 major companies in the U.S. have urged Biden and congressional leaders to act swiftly to prevent a U.S. default, warning of “disastrous consequences.” Moreover, some believe that a U.S. default would risk the dollar’s reserve currency status.
