The US Treasury Secretary has warned of “chaos” if the federal government fails to raise the debt ceiling.
Janet Yellen warned that if no action is taken to extend the amount the federal government can borrow, it could run out of money by early June.
If this was to happen, the federal government would be so strapped for cash that it might not be able to make wage, welfare and other payments.
Speaking to ABC News, Ms Yellen said any debt ceiling negotiations should not take place “with a gun to the head of the American people” but warned that time is rapidly running out to reach an agreement, the BBC reports.
President Biden is due to meet Republican leaders on Tuesday to seek their agreement on raising the current $31 trillion limit.
Last month, the House of Representatives passed a bill to raise the ceiling but it included a number of spending cuts over the next ten years.
President Biden wants to raise the debt ceiling with no stipulations and said he will consider budget cuts after the issue is resolved.
His administration is looking into whether it would be constitutional to keep raising the debt ceiling without the approval of Congress, but wants to avoid this at all costs.
Ms Yellen said that a failure to reach cross-party consensus on the ceiling could result in a “constitutional crisis”.
“We should not get to the point where we need to consider whether the president can go on issuing debt,” she said. “This would be a constitutional crisis.”
Since 1960, the debt ceiling has been raised, extended or revised 79 times, but the US has never defaulted.
While it is understood that a full default would have a catastrophic impact on the global financial markets, Yellen warned that delay could also have significant negative economic consequences.
In a letter to Congress last week, she wrote: “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.”