Treasury Janet Yellen warns of debt ceiling crisis in US

Yellen warns that extraordinary measures will be needed to prevent hitting the U.S. debt ceiling.


News Desk December 29, 2024
Photo: Reuters

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Treasury Secretary Janet Yellen announced that the U.S. Treasury will need to begin implementing "extraordinary measures" to prevent the nation from hitting its debt ceiling as early as January 14, 2025.

In a letter sent to congressional leaders on Friday, Yellen explained that the Treasury expects to reach the statutory debt ceiling between January 14 and January 23, 2025. Once this limit is reached, the department will deploy special accounting measures to avoid breaching the debt ceiling.

The debt ceiling, which has been suspended until January 1, 2025, will require immediate attention from Congress to prevent the U.S. government from defaulting on its obligations. "I respectfully urge Congress to act to protect the full faith and credit of the United States," Yellen stated in her letter.

This warning follows President Joe Biden's recent signing of a bill to avert a government shutdown. However, the bill did not include former President Donald Trump's demand to raise or suspend the nation's debt limit, leading to internal debate among Republicans. Trump criticized the bill, stating, "Anything else is a betrayal of our country."

The Fiscal Responsibility Act, passed in the summer of 2023 after contentious negotiations, suspended the U.S.'s borrowing authority, which currently stands at $31.4 trillion, until January 1, 2025.

However, Yellen noted that on January 2, 2025, a scheduled redemption of nonmarketable securities linked to Medicare payments is expected to cause the debt to temporarily decrease.

As a result, the Treasury does not anticipate needing to begin extraordinary measures on January 2.

Currently, the federal debt stands at approximately $36 trillion, a figure that has increased under both Republican and Democratic administrations.

Rising inflation following the coronavirus pandemic has also driven up government borrowing costs, with debt service next year projected to exceed national security spending.

As Republicans prepare to take full control of the White House, House, and Senate in the new year, there are plans to extend Trump's 2017 tax cuts, though discussions over how to fund these measures remain ongoing.

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