The current limit stands at $28.4 trillion and Yellen has been using book-keeping maneuvers to disinvest various government trust funds, such as government employee pension funds, to remain below the debt ceiling.
If those resources are exhausted the government will no longer be unable to pay its bills, or even service U.S. debt, putting the country in default for the first time in its history.
Such an event would send shockwaves through the global financial system since U.S. Treasury securities are considered the safest investments in the world.
Republicans have said they do not plan to support an increase in the debt limit, though they did so when Donald Trump was president. GOP lawmakers have said Democrats should increase or suspend the debt limit using the budget reconciliation process they are using for President Joe Biden's $3.5 trillion infrastructure bill. That can be done without GOP votes.
On Wednesday, however, House Speaker Nancy Pelosi said that Democrats would not be putting the debt limit increase in the reconciliation bill. The anticipation is that they will try to include the debt limit in a stop-gap spending bill that must pass before the new budget year begins on Oct. 1. If that measure does not pass, the government would face the prospect of a partial government shutdown until Congress did approve funding for the new year.
An analysis by the policy center found that Treasury had approximately $400 billion worth of cash on hand when the debt limit went back into effect on Aug. 1 and the availability of the various bookkeeping measures to create room under the debt ceiling to meet government spending needs.
But the center said that those resources were nearing exhaustion.
“Once the Treasury Department exhausts these resources, military pay, veterans' benefits, Medicare provider payments and numerous other payments would come due,” the center's analysis said. “Crossing the debt limit X Date would be an unprecedented event, carrying grave risk to financial markets and the global economy.”
While Congress has never failed to deal with the debt limit before a default occurred, in 2011 a budget standoff between the Obama administration and Republican lawmakers came so close to a default that the credit rating agency Standard & Poor's downgraded a portion of Treasury securities from their AAA rating, something that had never occurred before.