The U.S. Treasury Department may have to implement “extraordinary measures” as soon as January 14 to prevent the United States from defaulting on its debt, according to Treasury Secretary Janet Yellen’s letter to lawmakers on Friday.
Yellen urged Congress to take action to preserve the nation’s financial stability and ensure the U.S. government’s ability to meet its obligations. She also noted that U.S. debt is set to decline by around $54 billion on January 2, due to the redemption of nonmarketable securities linked to Medicare trust fund payments.
However, she warned that the Treasury expects to hit the debt ceiling between January 14 and January 23, at which point it will be forced to start using extraordinary measures.
Under the budget deal from 2023, the debt ceiling suspension will remain in effect until January 1, 2025, allowing the Treasury to continue paying its bills for the time being. Yet, Congress will need to address the issue next year to avoid default. Failure to act could lead to a scenario where the U.S. cannot meet its debt obligations, potentially triggering a severe economic crisis.
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The debt ceiling is a limit set by Congress on how much the government can borrow to cover its spending. Since the U.S. consistently spends more than it collects in taxes, lawmakers must periodically raise the debt limit, a task that often faces political resistance.
The U.S. first implemented a debt ceiling of $45 billion in 1939 and has since raised it 103 times. As of October, publicly held debt was 98% of the U.S. GDP, compared to 32% in October 2001.
