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Yellen Warns ‘Extraordinary Measures’ Will Be Needed to Avoid Default
The Treasury secretary urged Congress to protect the full faith and credit of the United States by raising the debt limit.
Alan Rappeport has covered debt limit fights during the Trump and Biden administrations.
Treasury Secretary Janet L. Yellen informed Congress on Friday that if lawmakers do not act to raise or suspend the nation’s debt limit as soon as Jan. 14 she would most likely need to begin using “extraordinary measures” to prevent the United States from defaulting on its debt.
Ms. Yellen issued her warning about the debt limit — which caps the amount of money that the United States is authorized to borrow to fund the government and meet its financial obligations — at a fractious political moment. Republicans are set to take control of Washington next month, and President-elect Donald J. Trump has already called on Congress to abolish the debt limit before he seeks to push through a new round of tax cuts and other spending priorities.
The debt limit was suspended in June 2023 after a contentious negotiation over federal spending, work requirements for receiving government benefits and funding for the Internal Revenue Service. That suspension is scheduled to expire on Jan. 2, forcing Treasury to begin using so-called extraordinary measures to allow the federal government to keep paying its bills.
Those measures are essentially accounting maneuvers that keep the government from breaching the debt limit. They can include suspending certain types of investments in savings plans for government workers and health plans for retired postal workers.
The United States borrows money to pay its bills and obligations, including funding for social safety net programs, interest on the national debt and salaries for members of the armed forces. If the United States is unable to raise the debt limit, it will soon be unable to make many of those payments, including to investors who have bought government debt.
“I respectfully urge Congress to act to protect the full faith and credit of the United States,” Ms. Yellen said in a letter on Friday.
She explained that it was not precisely clear when she would have to begin taking steps, which usually include curbing certain government investments, to avoid a default. Because of a technical issue related to federal investments, she said, the Treasury Department expects that extraordinary measures would have to be employed sometime between Jan. 14 and Jan. 23.
As lawmakers negotiated last week over a government spending bill, Mr. Trump complicated matters by making a last-minute push for them to lift or eliminate the debt limit. Republicans have for years used the debt limit as leverage to force Democrats to go along with painful spending cuts while they are in power, so the gambit by Mr. Trump put members of his own party in a difficult position.
Ms. Yellen in 2021 called the debt limit “destructive” and said it should be eliminated. Her immediate predecessor as Treasury secretary, Steven T. Mnuchin, expressed similar sentiments in 2017 when he described it as a “somewhat ridiculous concept” that did not limit spending.
Mr. Trump previously suggested that the borrowing cap was not necessary and said last week that the “Debt Ceiling guillotine” should be either extended or terminated before he took office.
The national debt exceeds $36 trillion, about $5 trillion more than it was when lawmakers suspended the ceiling in 2023. When the debt limit is reinstated on Thursday, it will automatically increase by the amount of debt that has been incurred since that suspension.
The Bipartisan Policy Center projects that the true “X-date,” which is when extraordinary measure will no longer be operable and the nation could actually default, would most likely occur sometime this summer.
Alan Rappeport is an economic policy reporter, based in Washington. He covers the Treasury Department and writes about taxes, trade and fiscal matters. More about Alan Rappeport
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