US perilously close to hitting debt limit and defaulting, warns treasury secretary Janet Yellen
Janet Yellen
The US Treasury Secretary Janet Yellen on Friday wrote a letter to House Speaker Kevin McCarthy, warning that the country was about to hit its debt ceiling limit and that extraordinary measures were needed to avoid defaulting."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," wrote Yellen in the letter.
"Once the limit is reached, Treasury will need to start taking certain extraordinary measures to prevent the United States from defaulting on its obligations."
In layman's terms, a debt limit is the amount of money that the US government can borrow to meet its financial obligations such as social security, military salaries and medicare benefits payments.
Congress last month extended the statutory debt limit to $31.4 trillion. However, the weak economic fundamentals and overflowing expenditures mean that the US will be breaching the limit. Consequently,Congress may have to engage in a tussle yet again to raise the limit.
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With the Senate under the control of Democrats and the House in Republican hands, it is highly unlikely that a straightforward limit hike will be possible. If the congressional lawmakers cannot make a decision quickly, the world's largest economy could risk defaulting on its debt.
According to Yellen, even the extraordinary measures, if implemented will only buy the government a limited amount of time.
"It is therefore critical that Congress act in a timely manner to increase or suspend the debt limit. Failure to meet the government's obligations would cause irreparable harm to the US economy, the livelihoods of all Americans, and global financial stability," warned Yellen.
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The Treasury Department has given two options to reduce debt obligations. Firstly, it has advised the government to redeem existing and suspend newinvestments in the Civil Service Retirement and Disability Fund (CSRDF) and the Postal Service Retiree Health Benefits Fund (Postal Fund).
Additionally, it has requested to suspendreinvestment of the Government Securities Investment Fundof the Federal Employees Retirement System Thrift Savings Plan.
Breaching the debt threshold could spell doom for President Joe Biden who is attempting to run for the 2024 presidential election.
(With inputs from agencies)
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