WASHINGTON (Reuters) – U.S. Treasury Secretary Janet Yellen said the government will reach its legal borrowing limit on Tuesday and will begin implementing “extraordinary measures” to avoid breaching the ceiling and triggering a potentially catastrophic default.
In a letter to congressional leaders on Friday, just three days before the Biden administration hands over control of the US government to President-elect Donald Trump and his team, Yellen said the Treasury Department would begin using emergency measures on January 21.
“The length of time that the emergency measures may last is subject to considerable uncertainty, including the challenges of forecasting payments and receipts from the U.S. government months into the future,” Yellen said in the letter.
Yellen said the Treasury Department would suspend investments in the pension and disability funds of government employees who are not required to pay benefits immediately.
Yellen said in late December that the debt ceiling would likely be reached between January 14 and 23 after Congress decided against including an extension or permanent repeal of the limit in a last-minute budget deal near the end of the year. Trump himself urged lawmakers to extend or repeal the debt ceiling and later denounced the previous failure to do so in 2023 as “one of the dumbest political decisions made in years.”
Under that 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 have to deal with the issue periodically — a politically difficult task, since many are reluctant to vote to increase the debt.
The history of the debt ceiling dates back to 1917, when Congress gave the Treasury Department greater borrowing flexibility to finance America’s entry into World War I, but with certain restrictions.
Lawmakers approved the first modern total debt limit of $45 billion in 1939, and since then have approved 103 increases as spending outpaced tax revenue. Public debt was 98% of US gross domestic product in October, compared to 32% in October 2001.
