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Janet Yellen, the treasury secretary, has said her agency will need to start taking “extraordinary measures”, or special accounting maneuvers intended to prevent the nation from hitting the debt ceiling, as early as 14 January, in a letter sent to congressional leaders on Friday afternoon.
“Treasury expects to hit the statutory debt ceiling between January 14 and January 23,” Yellen wrote in a letter addressed to House and Senate leadership, at which point extraordinary measures would be used to prevent the government from breaching the nation’s debt ceiling – which has been suspended until 1 January.
The department has in the past deployed what are known as extraordinary measures, or accounting maneuvers, to keep the government operating. But once those measures run out, the government risks defaulting on its debt unless lawmakers and the president agree to lift the limit on the US government’s ability to borrow.
“I respectfully urge Congress to act to protect the full faith and credit of the United States,” she said.
The news comes after Joe Biden signed a bill into law last week that averted a government shutdown but did not include Donald Trump’s core debt demand to raise or suspend the nation’s debt limit.
The bill was approved by Congress only after fierce internal debate among Republicans over how to handle Trump’s demand. “Anything else is a betrayal of our country,” Trump said in a statement.
A few hours after Yellen released the statement, tech entrepreneur Elon Musk, now one of closest allies of president-elect Trump, who has put him in charge of an ill-defined new unit – the “department of government efficiency” (Doge) – reposted on X part of an address by Milton Friedman, the famous free market economist of the free market.
Musk did not comment on Yellen’s remarks directly but the repost highlighted Friedman discussing the “free lunch myth … that government can provide goods and services at nobody’s expense”.
“Someone always pays – and usually, it’s you,” Friedman said in the address, indicating the general public. Musk commented: “Wise words from a true genius.”
After a protracted debate in the summer of 2023 over how to fund the government, policymakers crafted the Fiscal Responsibility Act, which included suspending the nation’s $31.4tn borrowing authority until 1 January.
Notably however, Yellen said, on 2 January the debt is projected to temporarily decrease due to a scheduled redemption of non-marketable securities held by a federal trust fund associated with Medicare payments.
As a result, “[the] treasury does not expect that it will be necessary to start taking extraordinary measures on January 2 to prevent the United States from defaulting on its obligations”, she said.
Typically “extraordinary measures” refers to an effort by the government to finance its operations as long as possible by shifting money and suspending investments in savings plans for government workers.
Political wrangling over US treasury debt is a traditional battlefield for political parties. Since 1960, politicians have moved to raise, extend or revise the debt limit more than 78 times.
The federal debt currently stands at roughly $36tn – which ballooned across Republican and Democratic administrations. And the spike in inflation after the coronavirus pandemic pushed up government borrowing costs such that debt service next year will exceed spending on national security.
Earlier this month, Yellen said she was “sorry” that “more progress” wasn’t achieved on the national debt during the Biden administration.
“Well, I am concerned about fiscal sustainability, and I am sorry that we haven’t made more progress,” Yellen said during a discussion held by the Wall Street Journal’s CEO Summit. “I believe that the deficit needs to be brought down, especially now that we’re in an environment of higher interest rates.”
Yellen pointed to the interest cost of the nation’s debt, which she described as “one of the largest items responsible for the increase in the budget deficit”.
Republicans, who will have full control of the White House, House and Senate in the new year, have big plans to extend Trump’s 2017 tax cuts and other priorities but debate over how to pay for them.
The Associated Press contributed reporting
