WASHINGTON — In one of her final actions as Treasury Secretary, Janet Yellen announced that the Treasury Department will initiate “extraordinary measures” starting January 21. This announcement was made in a letter dispatched to congressional leaders on Friday. Yellen had previously informed lawmakers in December that the Treasury anticipated reaching the statutory debt ceiling between January 14 and January 23. Consequently, starting Tuesday, the agency will halt payments into certain accounts such as the Civil Service Retirement and Disability Fund, along with the Postal Service Retiree Health Benefits Fund, to alleviate the financial shortfall.
This announcement coincides with the transition between administrations, as President-elect Donald Trump prepares to assume control from President Joe Biden on Monday. Consequently, Yellen will no longer be in office once these extraordinary measures are set in motion. Historically, the Treasury has utilized such extraordinary measures, characterized as special accounting strategies, to ensure continued government operations. However, once these measures are exhausted, there exists a significant risk of the government defaulting on its debt unless Congress and the president agree to raise the ceiling on the government’s borrowing capacity.
Yellen noted in her communication to House and Senate leaders that the duration for which these extraordinary measures can be employed is highly uncertain, particularly due to the complexities of predicting government financial inflows and outflows several months ahead. In her letter, she urged Congress to take swift action to safeguard the full faith and credit of the United States. Notably, upon raising or suspending the debt limit, the halted funds will be reimbursed, ensuring that federal workers and retirees remain unaffected by these measures.
In December, outgoing President Joe Biden enacted legislation aimed at preventing a government shutdown, though this did not accommodate President-elect Trump’s crucial demand for an increase or suspension of the national debt limit. Trump has since advocated for the complete abolition of the statutory debt ceiling, suggesting in a December NBC News interview that eliminating it would be the “smartest thing” Congress could undertake.
The current federal debt is approximately $36 trillion, a figure that has increased under both Republican and Democratic administrations. Moreover, the post-coronavirus pandemic inflation spike has heightened government borrowing costs, projecting that next year’s debt servicing will surpass national security spending. With the Republicans poised to hold complete control of the White House, House, and Senate in the upcoming year, they have ambitious plans to extend Trump’s 2017 tax cuts and pursue additional priorities, though discussions are ongoing regarding how to fund these initiatives.
Trump has nominated Scott Bessent, an investor from South Carolina, to head the Treasury Department. During his confirmation hearing, Senator Elizabeth Warren (D-Mass.) inquired whether Bessent believes the statutory debt limit should be abolished. Bessent indicated that if Trump desires to eliminate the debt ceiling, he would collaborate with him on that initiative. He asserted, “The U.S. is not going to default on its debt if I’m confirmed.”
