US Debt Warning
On December 27, U.S. House Speaker Mike Johnson received a warning letter from Janet Yellen. In the letter, she cautioned that unless Congress takes action to address the situation, the country could reach its debt limit as early as the second week of January.
According to the letter, the U.S. Treasury Department will implement special strategies as ‘extraordinary measures’, to avoid the government from defaulting on its debt.
In the letter addressed to Johnson, Yellen expressed the country’s current situation, explaining that the total amount of U.S. government debt that was counted toward the legal borrowing limit is expected to drop by $54 billion when a new debt limit is set on January 2. In spite of the decrease in the debt amount, the U.S. will soon reach a debt breach unless Congress acts to raise or suspend the limit.
She also said that the Treasury Department may begin preparing financial strategies between January 14 and January 23 to protect the country from Insolvency.
What if the U.S. hits the debt breach and goes on defaulting?
The debt limit is the legal cap on how much money the U.S. government can borrow to meet its financial obligations. Different programs such as Social Security, Medicare, Military services, Interest on the national debt, and tax refunds depend upon the money borrowed by the country because of the fact that the country spends more than it collects in revenue, as per Yellen’s letter.
If lawmakers fail to raise the debt limit, the government could face trouble paying the bills of those programs and could face financial crisis early.
Treasury Secretary Janet Yellen issued a warning about addressing the debt issue shortly after President-elect Donald Trump encouraged Congress to either raise or eliminate the debt ceiling completely. However, Congress failed to pass a proposed two-year suspension of the debt limit during a recent vote on a government spending bill, leaving the issue unresolved.
Debt Ceiling Suspended Until 2025 During Political Tensions
The Fiscal Responsibility Act of 2023 temporarily blocked the U.S. debt limit ,allowing the government to borrow without any restriction until January 1st,2025.This decision was passed after the intense political debate and disagreements.
However, Republicans are set to take control of the government in January, they will face the challenge of addressing the debt ceiling issue again. If not managed properly, this could lead to negative impacts on financial markets, such as reduced investor confidence, and increased borrowing costs for the government, affecting the overall economy .
“I respectfully urge Congress to act to protect the full faith and credit of the United States”, -Yellen wrote
Overall, Yellen urges to maintain country’s financial situation by pre-warning the government bodies about the cons of debt breach.
