Treasury Secretary Janet Yellen warned Congress that the country could hit its debt ceiling as soon as Jan. 14 in a letter sent Friday.
The warning comes after a punishing fight over a funding bill that saw President-elect Donald Trump call for the elimination of the debt ceiling as a part of his killing of a bipartisan agreement that nearly shut down the government.
Yellen said in the letter that the debt ceiling could be reached between Jan. 14 and Jan. 23, at which point the Treasury would, “start taking extraordinary measures,” to prevent the country from defaulting on its debts.
The current debt limit extension is slated to end on Jan. 1, though the letter said that the debt subject to the limit is projected to decrease by approximately $54 billion on Jan. 2.
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A default would occur if the U.S. failed to pay bondholders who have lent money to the government. The United States has never defaulted on its debts.
That’s part of why U.S. Treasury bonds are viewed as a safe investment and used by some banks as a backstop to counteract risky investments. A default would throw both the domestic and global economies into chaos.
The U.S. Treasury website warns that a default on the debt “would precipitate another financial crisis and threaten the jobs and savings of everyday Americans.”
In 2013, when the government careened toward default before raising the debt limit at the last minute, the economy lost 1% of GDP.
Congress could eliminate the debt ceiling. It’s an idea that has previously been pushed by Democrats. During the 2023 fight over the limit that led to the suspension of the debt ceiling and the eventual ouster of former Speaker of the House Kevin McCarthy, President Joe Biden said that he considered using the 14th Amendment to allow for the Treasury to continue paying the country’s debts.
