Treasury Secretary Janet Yellen told Congress on Friday that the United States should reach its debt limit on Thursday and then resort to “extraordinary measures” to avoid default.
In a letter to the House and Senate leaders, Yellen said his actions would buy time until Congress could pass legislation that would increase the debt limit from its current level by just over $31,000 billion — or suspend it again for a period of time.
“I am writing to inform you that as of Thursday, January 19, 2023, the debt owed to the United States is expected to reach the legal limit,” Yellen said. Once the cap is reached, the Treasury will need to start taking some extraordinary measures to prevent the US from defaulting. »
These measures include deferring certain payments, such as contributions to federal employee retirement plans, to create enough space to make other payments deemed necessary, including those for Social Security and debt instruments.
“Failure to live up to the government’s commitments will cause irreparable damage to the American economy, to the livelihoods of all Americans, and to global financial stability,” she said. “Indeed, in the past, even threats that the US government might not live up to its commitments have caused real damage, including the only credit rating downgrade in our country’s history in 2011.”
Yellen said that while the Treasury Department could not estimate how long the extraordinary measures would allow the United States to continue paying government obligations, “it is unlikely that the funds and extraordinary measures will be exhausted before early June.”
The debate over raising the debt ceiling will almost certainly lead to a political showdown between the newly empowered Republican lawmakers who now control the House of Representatives, President Joe Biden and the Democrats, who have benefited from one-party control. the last two years. years.
Previous projections indicated that a default could plunge the country immediately into a deep recession, at a time of slowing global growth as the United States and most of the world face hyperinflation due to the pandemic and Russia’s invasion of Ukraine.