Treasury Secretary Janet Yellen warned congressional leaders on Friday that the United States is expected to hit the debt limit on Jan. 19 and urged them to raise the debt limit as soon as possible. She said the Treasury Department will start taking necessary steps to keep paying the country’s bills, but without congressional action, the United States could default as soon as June.
“I am writing to inform you that beginning on Thursday, January 19, 2023, the outstanding debt of the United States is projected to reach the statutory limit,” Yellen wrote in a letter addressed to House Speaker Kevin McCarthy, Senate Majority Leader Chuck Schumer, Senate Minority Leader Mitch McConnell and House Minority Leader Hakeem Jeffries. “Once the limit is reached, the Treasury will need to start taking certain extraordinary measures to prevent the United States from defaulting on its obligations.”
This comes after Congress last raised the debt ceiling in December 2021 to more than $31.3 trillion. At the time, Democrats controlled both the House and Senate. But with the new Congress sworn in earlier this month and the House under Republican control, it is unclear whether lawmakers will be able to reach a bipartisan compromise. The last time the House voted to raise the debt limit, all the Republicans except one voted against it.
Failing to raise the debt limit would result in the first U.S. credit default in history.
It “would cause irreparable harm to the U.S. economy, the livelihoods of all Americans, and global financial stability,” Yellen wrote.
Starting this month, Yellen said the Treasury Department will start taking so-called “extraordinary measures” to continue paying the bills. They include redeeming and suspending new investments in the Civil Service Retirement and Disability Fund and the Postal Service Retiree Health Benefits Fund as well as suspending reinvestment of the Government Securities Investment Fund of the Federal Employees Retirement System Thrift Savings Plan. After the debt limit is resolved, the funds would be made whole.
Extraordinary measures have their limits, though, and Yellen predicted that those measures would put off default just until some time in June.
Yellen said it is critical for Congress to act in a timely manner to either increase or suspend the debt limit.
“The period of time that extraordinary measures may last is subject to considerable uncertainty due to a variety of factors, including the challenges of forecasting the payments and receipts of the U.S. government months into the future,” Yellen wrote. “While Treasury is not currently able to provide an estimate of how long extraordinary measures will enable us to continue to pay the government’s obligations, it is unlikely that cash and extraordinary measures will be exhausted before early June.”
Raising or suspending the debt limit does not authorize new spending, but it allows the government to make payments on existing debt amassed under multiple administrations. While the debt limit was most recently raised under President Biden in 2021, Congress has voted to raise the debt limit under both Democratic and Republican administrations, including three times under President Trump.
McCarthy this week compared the debt limit to a kid having a maxed out credit card and increasing the limit endlessly. He said Congress has to address the wasteful spending in the country.
He did not rule out raising the debt limit, suggesting instead that the deal between Trump and Pelosi in 2019 could provide a path forward – with an agreement to cap spending.
“I had a very good conversation with the president when he called me, and I told him I’d like to sit down with him early and work through these challenges,” McCarthy said at a press conference Thursday.
- Debt Ceiling
CBS News reporter covering economic policy.
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