By Jasper Ward and Kanishka Singh
WASHINGTON (Reuters) – The U.S. Treasury Department may have to take “extraordinary action” as early as Jan. 14 to prevent the United States from defaulting on its debt, Treasury Secretary Janet Yellen said in a letter to lawmakers on Friday.
Yellen urged lawmakers in the US Congress to act “to protect the full faith and credit of the United States.”
The U.S. debt is expected to decrease by about $54 billion on Jan. 2 “due to scheduled purchases of nonmarketable securities held by the federal trust fund linked to Medicare payments,” she added.
She said: “The Treasury currently expects to hit the new limit between January 14 and 23, at which point it will be necessary for the Treasury to start taking extraordinary measures.”
Under the 2023 budget deal, Congress suspended the debt ceiling until Jan. 1, 2025. The U.S. Treasury will be able to pay its bills for a few more months, but Congress will have to address the issue at some point next year.
Failure to take action could prevent the Treasury from paying its debts. Defaulting on the US debt would likely have severe economic consequences.
The debt limit is an upper limit set by Congress on how much money the US government can borrow. Because the government spends more money than it collects in tax revenue, lawmakers must deal with the issue periodically — a politically difficult task, since many are reluctant to vote to increase the debt.
Congress set the first debt limit at $45 billion in 1939, and since then has had to raise that limit 103 times, as spending has consistently exceeded tax revenue. Public debt was 98% of US gross domestic product in October, compared to 32% in October 2001.
