On January 19, Treasury Secretary Janet Yellen announced that the agency would begin taking extraordinary accounting measures to prevent the United States from breaching its debt limit. Yellen urged lawmakers to raise the ceiling to avoid a catastrophic default.
Yellen wrote to congressional leaders from both parties on Friday: “The duration of exceptional measures is subject to great uncertainty.” Cash and special measures are “unlikely to be issued before early June,” she said.
This letter marks the beginning of what promises to be a protracted and heated political debate over US fiscal policy, one that could strain financial markets and increase risks to an economy already threatened by the prospect of a recession.
If the debt ceiling is not raised, the treasury will run out of money sometime in August, economists say. To raise the debt ceiling, Republican leaders in the House of Representatives say they must first implement spending cuts.

Senate Democrats and President Biden oppose any “hostage-taking” tactics, preferring instead a simple raise, like the one Congress gave outgoing Republican President Trump.
About $31.4 trillion is the current debt ceiling, or the maximum amount of debt the Treasury can extend to the public and other government agencies. In December 2021, Congress set it at $2.5 trillion.
The government is currently short of about $78 billion. Yellen pleaded with Congress to resolve their differences and prevent the US economy and financial markets from collapsing. She stressed the urgency of Congressional action to raise or suspend the debt ceiling.
To paraphrase, “the US economy, the livelihoods of all Americans and global financial stability would be irreparably damaged” if the government failed to deliver on its promises.
The United States would be unable to meet its financial obligations if the Treasury were unable to issue new debt and then run out of cash. According to financial experts, the Treasury will not be at risk of bankruptcy until the second half of 2023, when the extraordinary methods it uses to stay below the limit would have been exhausted.
Brian Deese, director of the White House National Economic Council, stated in an interview with Bloomberg Television on Friday that “this is about fulfilling the responsibilities that previous Congresses have already taken on the part of the United States government.”
Congress must address the debt ceiling “without restraints, without games, and without jeopardizing our economy,” as the president put it. “It is a sacred commitment – the full trust and honor of the United States.”
Yellen expressed concern that federal contractors and workers would go unpaid and that Social Security checks would end if the debt limit was not raised in 2021. Investors would miss out on interest and principal on overdue bills, notes and bonds if payment was not prioritized to those who hold Treasury assets.
Economists and bond strategists are warning of volatility similar to that seen in 2011, when the US government’s rating was downgraded from AAA by S&P Global Ratings over the debt ceiling dispute.
The global stock market fell along with consumer confidence in the United States, threatening to undo progress since the financial crisis.

Yellen wrote that the Treasury will begin its exceptional measures by redeeming existing investments from the Civil Service Retirement and Disability Fund and the Postal Service Retiree Health Benefits Fund and stopping the addition of new investments to these two funds.
The Treasury Department will also stop contributing to the Thrift Savings Plan for Federal Employees’ Retirement System’s Government Securities Investment Fund. Yellen has promised that once the standoff is over Capitol Hill resolved, those monies will be refunded in full.
Given the importance of meeting US obligations, Lawrence Summers, one of Yellen’s predecessors, has head of the treasurycalled debt-ceiling arguments the “dumbest” in Washington.
Summers, a Harvard professor and a paid commentator at Bloomberg Television, stated Friday, “A default would be a catastrophe — it would mean forever higher borrowing costs.”
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