The U.S. government is likely to run out of cash on Oct. 18 unless Congress raises the federal borrowing cap, Treasury Secretary Janet Yellen warned Tuesday.
After that date, Treasury's funds "would be depleted quickly" and "it is uncertain whether we could continue to meet all the nation's commitments after that date," she said in a letter to congressional leaders.
Yellen again warned of dire consequences if lawmakers fail to act quickly including debt default and undermining the American dollar.
With the clock ticking, Republicans in the US Senate have stubbornly refused to support an increase or suspension of the debt ceiling, despite having pressed for it under their party's former President Donald Trump.
Yellen called the debt limit increase a "shared responsibility" that both parties should support.
"It is imperative that Congress swiftly addresses the debt limit. If it does not, America would default for the first time in history," Yellen told the Senate Banking Committee.
Without an increase, the government would be unable to pay salaries of public workers, send payments to retirees, or service the nation's debt.
It also "would undermine confidence in the dollar as a reserve currency" and as a "safe haven asset," she said.
"This would be a manufactured crisis, we have imposed on this country which has been going through a very difficult period is on the road to recovery."
Despite the dire warnings, including from business groups, Senate Republicans late Monday blocked a House-passed bill to suspend the debt limit until December 2022 and avert a government shutdown, pressing Democrats to find their own path forward.
Lawmakers face a more immediate deadline on funding the government past Thursday, when the current fiscal year ends.
Rumors abound at the Capitol that there will be House vote Tuesday solely on raising the debt ceiling, but that would still bump up against Republican opposition in the evenly-divided Senate, where Democrats will struggle to find 60 votes.
Democrat Senate Majority Leader Chuck Schumer Tuesday said he would introduce a measure later in the day to seek a borrowing increase by a simple majority, something Republicans have done in the past, which would allow Democrats to move alone.
Schumer challenged the opposition — which he called "the official party of default, the party that says America doesn’t pay its debts" — to support this way out of the impasse.
Senate Republican leader Mitch McConnell has used the debt limit as a political bludgeon to protest President Joe Biden's spending plans — including a $3.5 trillion package of social spending over a decade currently being debated in the House.
Under Trump, the ceiling was suspended for two years on a bipartisan basis after McConnell at the time argued that failing to do so "would be a disaster."
The cap was reinstated on August 1 with the country's debt at $28.4 trillion.
Raising the debt limit does not increase spending, but simply allows Treasury to finance projects already approved by Congress, including trillions of dollars in aid rolled out during the Covid-19 pandemic.
Yellen said the spending helped support the U.S. recovery, which "is stronger than those of other wealthy nations."
But failure to raise the debt ceiling — which has been done 78 times since 1960, nearly always on a bipartisan basis — could create "a catastrophic event for our economy."
She acknowledged that "deficits have been run under both Democratic and Republican administrations," but said "paying the bills for those deficits is a shared responsibility" and noted that Democrats have done so under Republican presidents.
Federal Reserve Chair Jerome Powell, who appeared with Yellen at the Senate hearing, also has warned of dire consequences, as have a series of former Treasury secretaries and business groups.
In her latest letter to lawmakers, Yellen said prompt approval is critical since "waiting until the last minute can cause serious harm to business and consumer confidence, raise borrowing costs for taxpayers and negatively impact the credit rating of the United States for years to come."
"Failure to act promptly could also result in substantial disruptions to financial markets, as heightened uncertainty can exacerbate volatility and erode investor confidence," she said.
Raising the debt ceiling has been a contentious issue in Congress for the past several years, and a 2011 standoff caused S&P Global Ratings to downgrade US sovereign debt from its coveted AAA rating.