A global recession could be triggered if Democrat and Republican politicians do not resolve the US debt ceiling dilemma.
If the country were to reach its debt ceiling, this would mean the Government would be unable to borrow any money.
As of today, the current debt ceiling limit is $31.4trillion (currently £25.12trillion) limit and has been raised, extended or revises 78 times since 1960.
Janet Yellen, the Treasure Secretary told Congress on Monday that the country could default on its debt as soon as June 1 which would lead to an economic catastrophe.
This would be the first time America defaulted and experts believe it could lead to a worldwide recession due to the U.S no longer being considered a global business partner.
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She warned that a global recession is a possibility if legislators do not raise or suspend the US’ borrowing authority before that date.
In Ms Yellen’s letter to policymakers, the Treasure Secretary pleaded with House and Senate leaders to address the $31.4trillion (£25.1trillion) limit on its legal borrowing authority.
She said: “After reviewing recent Federal tax receipts, our best estimate is that we will be unable to continue to satisfy all of Government’s obligations by early June, and potentially as early as June 1, if Congress does not raise or suspend the debt limit before that time.”
However, Ms Yellen noted that is impossible for sure to know when the US will run out of money.
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Her statement was also supported by the Congressional Budget Office (CBO) which determined there was a high risk of US running out of money by June.
As it stands, the Treasury is planning to raise borrowing by around $726billion (£580billion) to the end of June.
This is more than expected due to lower-than-forecast income tax receipts and higher Government spending.
Republican leaders have called for drastic spending cuts and a reversal of President Joe Biden’s legislative agenda in order to agree to raise the debt ceiling limit.
So far, Biden has refused calls to do so but is under fire from business leaders and the US Chamber of Congress to meet around the table with House Leader Kevin McCarthy to resolve the issue.
In a joint statement, Democratic Senate Majority Leader Chuck Schumer and House Democratic Leader Hakeem Jeffries, said: “Republicans cannot allow right-wing extremism to hold our nation hostage.
“For generations, Congress has made spending and revenue decisions as part of the annual budget process, which is currently underway.”
Regarding the debt ceiling, Mr McCarthy said Biden and the Democrat-controlled Senate “need to get to work”.
Shai Akabas, the director of economic policy at the Bipartisan Policy Center, warned there is “no time to waste” for policymakers.
He added: “The US government is again within mere months or even weeks of failing to make good on all its obligations.
“That is not a position befitting of a country considered the bedrock of the financial system, and only adds uncertainty to an already shaky economy.”
Mr Akabas’ organisation is set to provide a projected date for when the Government will exhaust its extraordinary measures.
