Treasury Secretary Janet Yellen notified Congress on Friday that the U.S. is projected to reach its debt limit on Thursday and will then resort to “extraordinary measures” to avoid default.
In a letter to House and Senate leaders, Yellen said her actions will buy time until Congress can pass legislation that will either raise the debt limit from its current level of just over $31 trillion US — or suspend it again for a period of time.
“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 said. “Once the limit is reached, Treasury will need to start taking certain extraordinary measures to prevent the United States from defaulting on its obligations.”
Those measures include delaying some payments, such as contributions to federal employees’ retirement plans, in order to provide some headroom to make other payments that are deemed essential, including those for Social Security and debt instruments.
“Failure to meet the government’s obligations would cause irreparable harm to the U.S. economy, the livelihoods of all Americans and global financial stability,” she said. “Indeed, in the past, even threats that the U.S. government might fail to meet its obligations have caused real harms, including the only credit rating downgrade in the history of our nation in 2011.”
Yellen said that while Treasury can’t estimate how long the extraordinary measures will allow the U.S. to continue to pay the government’s obligations, “it is unlikely that cash and extraordinary measures will be exhausted before early June.”
The debate over raising the debt ceiling will almost certainly result in a political showdown between newly empowered GOP lawmakers who now control the House, and President Joe Biden and Democrats, who had enjoyed one-party control of Washington for the past two years.
Past forecasts suggest a default could instantly bury the country in a deep recession, right at a moment of slowing global growth as the U.S. and much of the world face high inflation because of the pandemic and Russia’s invasion of Ukraine.
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