Treasury Secretary Janet Yellen: 'There is no good option' other than raising the debt ceiling

We're three weeks away, I should say, from June 1st. That is the deadline that Treasury Secretary Janet Yellen has set for a potential breach of the debt limit. And as that deadline looms, President Joe Biden is going to be meeting with lawmakers tomorrow at 4 p.m. Eastern, right around this time, to discuss ways to avoid a default. Joining us now, Treasury Secretary Janet Yellen, along with CNBC's Sarah Eisen. Sarah, take it away.

Thank you so much, John Ford. And thank you, Secretary Yellen, for making time to talk to us today. Good to see you. Thank you, my pleasure. Thanks for having me. So you've been warning about this date, June 1st, that we need to raise the debt ceiling, or else it could be a disaster, a financial catastrophe. Can you just walk us through what that looks like, if it doesn't get done? Because so far, there's no deal on the table.

So our projection is that in early June, and possibly even as early as June 1st, we're going to have to raise the debt ceiling. And so, the Treasury will run out of cash and extraordinary measures that we're using to pay our bills while staying below the debt ceiling. And so, something we'll have to give, we just will not have, if Congress doesn't raise the debt ceiling, we just will not have enough money at that time to be able to pay all of the bills the government owes. The first time since 1789 that such a thing would have occurred. And it's really essential that Congress raise the debt ceiling so that we're not in a position of defaulting on our bills. It's that something that could produce financial chaos, would drastically reduce the amount of spending, would mean that social security recipients and veterans and people counting on money from the government, that they're owed contractors. We just wouldn't have enough money to pay the bills.

And I think it's widely agreed that this would be a huge hit to the economy and really an economic catastrophe. Just to gain that out further. So where do bondholders fit in in terms of the prioritization of who gets paid in a technical default? Do they get prioritized or is it just about paying the bills as soon as the money comes in? Well, you know, I would say that if Congress doesn't raise the debt ceiling, the president will have to make some decisions about what to do with the resources that we do have. There are a variety of different options, but there are no good options. Every option is a bad option. And I really don't want to get into discussing them and ranking them because, as every Treasury secretary has known, the only option that really leaves our economy in good shape is, and our financial system is raising the debt ceiling and making clear that Congress stands behind the basic principle that America pays its bills. We're not a deadbeat country.

And if that's compromised, even in the run-up to it, if it looks like we're going to go up against the ceiling and may not get it done, that will have tremendously adverse effects on financial markets in the economy. So there just is no good option other than raising the debt ceiling. I know you've been having nonstop conversations about this behind the scenes, Secretary Yellen report, that you've been talking to business leaders, CEOs about this. I'm sure you're talking to members on both sides on the Hill. What's your feeling? We're going into this big meeting between McCarthy and the president tomorrow. Three and a half weeks to go. Do you think there will be a deal done or are you pessimistic? It sounds like you're worried.

Well, clearly there's a very big gap between where the president is and where the Republicans are. The president set out a detailed budget. In that budget, he invests in America. He cuts wasteful and inefficient spending and lowers deficits over 10 years by $3 trillion. But his and so he and I regard it as a fiscally responsible proposal. The Republicans have very different ideas. They want to focus on cutting spending and the proposals that they've set out would entail draconian cuts and really end the policies we've put in place to invest in our economy and clean energy.

So they're far apart. But look, we need to have discussions and compromise over fiscal policy, spending totals and what spending goes for. That's a normal budget process and the president hopes to establish a process for discussing and compromising on those issues. But he's not willing to do it with the gun to not only his head, more importantly, it's a gun to the head of the American people in the American economy because a failure to raise the debt ceiling is really saying if the president and the Democrats don't agree to these draconian cuts, we're going to do something to bring enormous harm to American households that rely on the government and need to have jobs. So Congress needs to raise the debt ceiling and we also need to have a negotiation over spending.

Closing Bell Overtime, CNBC, business news, finance stock, stock market, news channel, news station, breaking news, us news, world news, cable, cable news, finance news, money, money tips, financial news, stock market news, stocks