Treasury Secretary Yellen Warns of ‘Extraordinary Measures’ to Avoid Debt Ceiling
TL/DR –
US Treasury Secretary, Janet Yellen, has alerted Congress that her department will need to start implementing “extraordinary measures” as soon as 14 January to prevent the nation from hitting its debt ceiling. These measures, previously utilized, involve special accounting practices that keep the government functional but, if depleted, could lead to the government defaulting on its debt. Yellen’s announcement follows a failure to include a suspension or raise of the debt limit in a recent bill, a demand central to former President Donald Trump’s debt strategy.
Treasury Secretary Janet Yellen Predicts “Extraordinary Measures” for US Debt Ceiling
Treasury Secretary Janet Yellen has alerted congressional leaders of the impending need for “extraordinary measures” to prevent the US from breaching the national debt ceiling. These special accounting maneuvers could be applied as soon as January 14 according to a letter sent on Friday.
Yellen suggests that the statutory debt ceiling may be hit between January 14 and 23. Upon this event, extraordinary measures would help in keeping the US government from exceeding its debt limit, which is suspended until the start of the year.
Extraordinary measures have been previously employed to maintain government operations. If these tactics are exhausted, and no agreement is reached to increase the nation’s borrowing limit, defaulting on its debt becomes a risk.
Yellen appealed to Congress to maintain the full faith and credit of the nation. The news follows President Joe Biden’s recent approval of a bill that prevented a government shutdown but did not cater to former President Donald Trump’s demand for an increase or suspension in the debt limit.
The bill came after heated debates among Republicans on Trump’s demand. Subsequent to Yellen’s statement, tech magnate Elon Musk shared an address by famed economist Milton Friedman on X, discussing the myth of government-provided free lunches.
Musk did not comment directly but his repost implied a shared sentiment with Friedman’s statement, “Someone always pays – and usually, it’s you.”
The Fiscal Responsibility Act, crafted after extensive debates in summer 2023, suspended the nation’s $31.4tn borrowing authority till January 1. Yellen, however, projected a temporary debt decrease on January 2 due to a redemption of non-marketable securities.
The treasury, she stated, does not anticipate having to take extraordinary measures on January 2 to prevent a default. Such measures typically involve shifting money and suspending investments in government worker savings plans.
Political sparring over US treasury debt is a common occurrence, with the debt limit raised, extended, or revised over 78 times since 1960. The federal debt is currently at approximately $36tn, further inflated by post-pandemic inflation.
In a recent discussion at the Wall Street Journal’s CEO Council summit, Yellen expressed regret over the lack of progress on national debt during the Biden administration. She emphasized the need for deficit reduction in the current environment of higher interest rates.
She highlighted the nation’s debt interest cost as one of the main factors contributing to the budget deficit increase. Meanwhile, Republicans, who will control all branches of government in the new year, are planning to extend Trump’s 2017 tax cuts and other priorities amidst debates on funding sources.
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