The U.S. government could face a cash shortage to pay its bills as early as June 1, according to a letter sent by Treasury Secretary Janet Yellen to Congress. This has prompted President Joe Biden to invite the top congressional leaders to the White House for a meeting next week.

If no action is taken by Congress, the United States may be headed towards an unprecedented default that could have serious consequences for the global economy.

Both Democrats and Republicans in Washington are now preparing for a potentially lengthy political standoff.
President Joe Biden called Republican House Speaker Kevin McCarthy, who is currently on a diplomatic trip in Jerusalem, to invite him to a meeting at the White House on May 9.

This will be the first time they have met since February to discuss issues. Biden also invited House Democratic leader Hakeem Jeffries, Senate Majority Leader Chuck Schumer, and Republican leader Mitch McConnell to the same meeting.

McConnell, who was previously sidelined for weeks due to a fall in March, had a positive conversation with Biden and expects to speak to him again in the future.

Last week, House Republicans passed a bill to increase the debt limit that includes significant spending cuts, which the Democratic-controlled Senate and President Joe Biden have rejected.

Biden has maintained that he will not negotiate on the debt ceiling increase but is willing to discuss budget cuts after the new limit is passed. Historically, Congress has paired debt-ceiling increases with other budget and spending measures.

Despite earlier indications that he would not meet with House Speaker Kevin McCarthy to discuss the debt limit, Biden is now scheduled to meet with him and other congressional leaders on May 9. The White House has stated that Biden will emphasize the need for Congress to take action to avoid default without imposing any conditions.

According to Treasury Secretary Janet Yellen, the US government could face a cash shortage around June 5th due to a potential "X-date," which takes into account April tax payments. This estimate is similar to a previous one issued in January.

However, Yellen also stated that federal receipts and outlays are subject to fluctuations, and the actual date that the Treasury runs out of extraordinary measures could be several weeks later than the estimated date. Yellen also noted that it is impossible to predict the exact date when the government will be unable to pay its bills with certainty.

After reaching the $31.4 trillion borrowing limit on January 19, Treasury Secretary Janet Yellen informed Congress that Treasury would utilize extraordinary cash management measures to continue making debt payments, federal benefits, and other expenditures. One such measure involves the suspension of securities sales that state and local governments use to hold temporary cash.

In 2011, a similar fight over the debt ceiling nearly led to a default and caused the country's credit rating to be downgraded. Experts suggest that negotiations this time around may be even more challenging than in 2011.
The bill passed by the Republican-led House on April 26 proposes a $1.5 trillion increase in the US debt limit in exchange for significant spending cuts, including reduced tax incentives for solar energy.

The bill, which also has no chance of passing in the Democrat-controlled Senate, has been threatened with veto by President Biden. The short deadline for resolving the issue highlights the pressing need for a resolution to the dispute, and suggests that Congress may not be able to negotiate a solution through the summer months, according to budget analyst Shai Akabas of the Bipartisan Policy Center.

According to budget analyst Shai Akabas of the Bipartisan Policy Center, the possibility of a US default within weeks is unacceptable for a country that is considered the foundation of the financial system. He believes that such a default would only increase the instability of an already fragile economy, and that it is important for Congress to find a solution to the ongoing dispute over the debt limit as soon as possible.

Treasury Secretary Janet Yellen's lack of clarity on the specific default date is partly due to several fiscal events in June that could provide some relief.

Analysts suggest that if the Treasury can make it past early June benefit payments, it could receive a significant amount of cash from quarterly estimated tax payments due on June 15. This could allow the Treasury to continue operating until June 30, when it could access $143 billion in borrowing by suspending the reinvestment of maturing securities held by government retirement funds. Therefore, these events could buy the Treasury some time to avoid a potential default.
The U.S. Treasury's ability to make payments after early June will depend on June's fiscal events, such as tax payments and borrowing from the government retirement funds.

While this could provide some breathing room, the U.S. debt ceiling battles are expected to continue in the future as programs like Social Security and Medicare account for a significant portion of the budget and are projected to grow as the population ages. With the current debate, Biden is using the House Republican proposal to portray his opposition as a risk to local economies, as he seeks re-election in 2024.