WASHINGTON – Treasury Secretary Janet Yellen has notified congressional leaders that her department may need to initiate “extraordinary measures,” which are specialized accounting practices aimed at avoiding a breach of the debt ceiling, starting as early as January 14. In her letter to leaders in the House and Senate, Yellen indicated that the Treasury anticipates reaching the statutory debt ceiling between January 14 and January 23, at which point these extraordinary measures will be necessary to ensure that the government does not exceed its borrowing limit, currently suspended until January 1, 2025.
The Treasury has previously employed such extraordinary measures to maintain government operations. However, once these options are exhausted, the risk of default on the nation’s debt looms unless lawmakers and the president can come to a consensus on raising the borrowing limit. Yellen emphasized the urgency of the situation, urging Congress to act swiftly to uphold the creditworthiness of the United States.
This development comes on the heels of President Joe Biden signing legislation last week that successfully prevented a government shutdown, though it notably did not address former President Donald Trump’s key demand to raise or suspend the national debt limit. Following intense internal debate within the Republican Party on how to respond to Trump’s request, the bill eventually gained approval in Congress. Trump expressed strong disapproval, claiming that any failure to act would amount to a betrayal of the country.
Earlier in 2023, a lengthy discussion led to the creation of the Fiscal Responsibility Act, which temporarily suspended the nation’s borrowing authority of $31.4 trillion until January 1, 2025. Interestingly, Yellen pointed out that the federal debt is expected to briefly decrease on January 2 owing to the redemption of nonmarketable securities related to a federal trust fund for Medicare. Consequently, she noted that it is unlikely extraordinary measures will need to be implemented on January 2 to prevent the United States from defaulting on its obligations.
As it stands, the national debt is approximately $36 trillion, a figure that has escalated across administrations of both political parties. The aftermath of the coronavirus pandemic has also led to heightened inflation, resulting in increased government borrowing costs, which are projected to surpass expenditures on national security in the coming year. Looking ahead, Republicans will assume full control of the White House, House, and Senate in the new year and have significant plans to extend Trump’s 2017 tax cuts, although they face challenges in determining how to finance these initiatives.
