Treasury Secretary Janet Yellen warned Friday that the United States may reach its debt ceiling as early as mid-January and urged Congress to “act to protect the full faith and credit” of the nation.
The debt ceiling, which places a cap on how much the government can borrow to cover obligations that have already been incurred, has been put on hold by lawmakers until January 1 of the following year.
This implies that a new cap that corresponds to the total amount of debt issued by the Treasury Department will be established on January 2.
But since lifting the ceiling has been a divisive partisan issue in recent years, the way forward may become controversial if the US reaches this new limit.
“Treasury currently expects to reach the new limit between January 14 and January 23, at which time it will be necessary for Treasury to start taking extraordinary measures,” said Yellen in a letter addressed to Republican House Speaker Mike Johnson and other lawmakers.
By taking such drastic steps, the Treasury Department is able to keep funding government operations and keep it from going into default.
According to Yellen, the United States’ outstanding debt is expected to drop by around $54 billion on January 2, so the government won’t reach the debt limit when the suspension ends.
It’s “mostly due to a scheduled redemption of nonmarketable securities held by a federal trust fund associated with Medicare payments,” she stated.
To enable the government to fulfill its spending obligations, Congress has increased the cap more than 100 times.
But conservatives are generally against increasing the country’s massive borrowing — currently standing at $36.2 trillion — and multiple Republicans have never voted for a hike.
If the debt ceiling is not raised or suspended before the Treasury’s tools are exhausted, the government risks defaulting on payment obligations — with profound implications for the world’s biggest economy.
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