Republicans Question If Default Is as Close as Yellen Says It Is

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(Bloomberg) -- House Republicans aren’t buying Treasury Secretary Janet Yellen’s warning that the US government will run out of money as soon as June 1, or her dire predictions of default, undercutting the urgency to raise the debt limit.

“We’d like to see more transparency on how they came to that date,” House Majority Leader Steve Scalise told reporters after a closed meeting on Tuesday. “It looks like they’re hedging now and opening the door to move that date back.”

One House Republican, who asked not to be named to speak candidly about his party’s assessment, said he believes the US should stop paying government salaries first if the Treasury Department exhausts its extraordinary measures to pay bills before Congress allows it to borrow more. 

The Washington Post on Tuesday reported that the Treasury sent a memo to government agencies asking whether some payments could be flexible. Yellen has repeatedly said the Treasury risks not having enough funds to meet all payments until a wave of tax receipts expected on June 15. 

The Treasury isn’t alone in its projections. The Congressional Budget Office has said there is a “significant risk” of a payments default in the first two weeks of June without a debt deal. The Bipartisan Policy Center said Tuesday there’s an “elevated risk” of hitting that point between June 2 and 13.

Analysts at Goldman Sachs Group Inc (NYSE:GS). and Wrightson ICAP (LON:NXGN) have penciled in June 7-8 as a key danger zone; Morgan Stanley (NYSE:MS) says June 8 is its base case for X-date, when the Treasury runs out of sufficient cash.

Much of the Republican conference shrugging off the urgency communicated by the White House, US corporate executives and financial markets is a troubling sign for the negotiations that continue on Tuesday. Representatives for House Republicans and the Biden administration stayed at the Capitol late Monday night and reconvened Tuesday to continue trading proposals. 

‘Got the Money’

Representative Chip Roy of Texas called the default warnings a “manufactured crisis” to force Republicans to step back from some demands. 

“The fact is, we’re going to have cash in June,” Roy told reporters Tuesday. “The fact is, we’re not going to default on our debt. That’s just completely false. We’ve got the money to do it.”

Roy and other conservatives like Matt Gaetz of Florida questioned Yellen’s designation of June 1 as the X-date, and told reporters to “ask her about her ouija board.”

Speaking to reporters Monday night at the Capitol after he returned from the White House, McCarthy insisted that the real crisis is unsustainable levels of government spending that must be curtailed. Asked on Tuesday whether he believes that June 1 is, in fact, the deadline for his negotiations with President Joe Biden, McCarthy was noncommittal.

McCarthy’s Take

“I don’t pick the deadline,” McCarthy said. “Janet Yellen picks the deadline. She determines what it is and I just go by what she says.”

White House officials note they have publicly stressed the need to quickly extend the debt limit for weeks. Last week, Biden canceled planned stops in Papua New Guinea and Australia following the Group of Seven meeting in Japan to return back to Washington for negotiations.

And Biden himself emphasized the urgency with McCarthy and other congressional leaders before he left for his trip, White House press secretary Karine Jean-Pierre told reporters.

“The President has sat down twice with congressional leaders very recently to hear them out, to have a conversation, to talk about his budget, to talk about the urgency of getting the debt limit done, of Congress doing their job,” she said Saturday.

While major banks and financial institutions are preparing contingency plans in the event of a technical default, the true fallout for the global economy has not yet been tested. 

JPMorgan Chase & Co. (NYSE:JPM) Chief Executive Officer Jamie Dimon warned earlier this month that even going to the brink is dangerous, with unpredictable consequences.

Yellen has declined to indicate how Treasury would proceed if it were to run out of cash, saying only that there “will be hard choices to make.”