In one of her last acts as Treasury Secretary, Janet Yellen said her agency will start taking “extraordinary measures”, or special accounting manoeuvres intended to prevent the nation from hitting the debt ceiling, on Tuesday in a letter sent to congressional leaders.
She sent a letter in late December to legislators stating that Treasury expected to hit the statutory debt ceiling between January 14 and Wednesday. And now, the agency will stop paying into certain accounts, including the Civil Service Retirement and Disability Fund and the Postal Service Retiree Health Benefits Fund, to make up for the shortfall in money beginning Tuesday.
The move comes during the switchover of administrations, where President-elect Donald Trump takes over control of the White House and federal agencies from President Joe Biden tomorrow. Yellen will be out of office when the extraordinary measures take effect.
The department has in the past deployed what are known as “extraordinary measures”, or accounting manoeuvres, to keep the government operating. But once those measures run out, the government risks defaulting on its debt unless legislators and the president agree to lift the limit on the US government’s ability to borrow.
“The period of time that extraordinary measures may last is subject to considerable uncertainty, including the challenges of forecasting the payments and receipts of the US government months into the future,” Yellen wrote in a letter addressed to House and Senate leadership.
“I respectfully urge Congress to act promptly to protect the full faith and credit of the United States,” she said.
When the debt limit is raised or suspended those funds will be paid back and federal retirees and workers won’t be affected by the actions.
Outgoing President Biden in December signed a bill into law that averted a government shutdown but did not include Trump’s core debt demand to raise or suspend the nation’s debt limit.
Trump has called for the statutory debt ceiling to be abolished. He told NBC News in December that getting rid of the debt ceiling entirely would be the “smartest thing” the Congress could do.
The federal debt currently stands at roughly $36 trillion – which ballooned across both Republican and Democratic administrations. And the spike in inflation after the coronavirus pandemic pushed up government borrowing costs such that debt service next year will exceed spending on national security.
Republicans, who will have full control of the White House, House and Senate in the new year, have big plans to extend Trump’s 2017 tax cuts and other priorities but debate over how to pay for them.
Trump has nominated South Carolina investor Scott Bessent, to lead the Treasury Department. During his confirmation hearing on Thursday, Bessent was questioned by senator Elizabeth Warren, who asked whether Bessent thinks the statutory debt limit should be repealed.
Bessent said in response that if Trump wants to eliminate the debt limit, “I will work with him.”
“The US is not going to default on its debt if I’m confirmed,” he said.
Earlier this month, Fitch Ratings said the US faces “significant fiscal policy challenges in 2025.”
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