By Jasper Ward and Kanishka Singh
WASHINGTON (Reuters) – The U.S. Treasury Department may need to take “extraordinary measures” as early as Jan. 14 to prevent the United States from defaulting on its debt, Treasury Secretary Janet Yellen told lawmakers in a letter on Friday.
Yellen urged lawmakers in the US Congress to act “to protect the full faith and credit of the United States.”
The US debt is expected to fall by about $54 billion on January 2 “due to the redemption of non-marketable securities held by a federal trust fund linked to Medicare payments,” he added.
He said: “Currently the Treasury expects to reach the new limit between January 14 and January 23, at which point the Treasury will need to start taking extraordinary measures.”
Under the 2023 budget deal, Congress suspended the debt ceiling until January 1, 2025. The US Treasury will be able to pay its bills for several more months, but Congress will have to address the issue at some point the next year.
Failure to act could prevent the Treasury from paying its debts. A US debt default would likely have serious economic consequences.
The debt limit is a cap set by Congress on how much money the US government can borrow. Because the government spends more money than it collects in tax revenue, lawmakers need to address the issue from time to time – a difficult political task, as many are reluctant to vote for more debt.
Congress set the first debt limit of $45 billion in 1939, and has had to raise that limit 103 times since then, as spending has consistently outstripped tax revenue. Public debt was 98% of US gross domestic product in October, compared to 32% in October 2001.
(Reporting by Jasper Ward and Kanishka Singh; Editing by Chris Reese and Rosalba O'Brien)