U.S. Treasury Secretary, Janet Yellen, has issued a stark warning to Congress, stating that the federal government will reach its debt ceiling by January 14 2025 unless lawmakers act swiftly or the Treasury Department resorts to ‘extraordinary measures’ to prevent a default.
Under a 2023 budget agreement, Congress suspended the debt ceiling – the legal cap on the amount of money the U.S. government can borrow – until January 1 2025. However, without further intervention, the Treasury will be unable to meet all its financial obligations, potentially risking the country’s creditworthiness.
In a letter sent to lawmakers, Yellen projected that the debt limit will be hit between January 14 and 23 2025, prompting the need for special accounting maneuvers to keep operations running. She also mentioned that the U.S. debt, currently hovering around $36 trillion, is expected to drop by approximately $54 billion on January 2 2025 due to a scheduled redemption of non-marketable securities tied to Medicare trust funds.
While ‘extraordinary measures’ can typically buy the government months of leeway, Yellen emphasized that once these temporary fixes expire, the risk of default becomes more immediate unless Congress and the President act to raise the borrowing limit. She urged lawmakers to take prompt action to safeguard the nation’s fiscal health and maintain investor confidence in U.S. debt.
Yellen’s comments come just days after President Joe Biden signed a crucial funding bill into law, averting a government shutdown. This legislation ensures continued government operations through March 14 2025 but did not include an extension of the debt ceiling, a measure President-elect Donald Trump has advocated for abolishing altogether, calling it the ‘smartest thing’ Congress could do.
In June 2023, after months of intense negotiations, Congress successfully suspended the debt ceiling, narrowly avoiding what could have been a historic default. As the U.S. nears another fiscal cliff, the pressure is mounting on lawmakers to take decisive action.
The U.S. national debt has grown by $2 trillion in less than a year surpassing $36 trillion for the first time in history in 2024. The figure grew by nearly 6% from January to November 2024 increasing by $1 trillion in less than 4 months. The debt is expected to reach a record of over 106% of GDP in 2027 and eventually rise to 122% by 2034.
MILESTONE | The U.S National Debt Surpasses $36 Trillion in November 2024 – The Highest Globally
The World Bank typically views a debt-to-GDP ratio above 60% as potentially detrimental to long-term financial stability.
U.S ratio now surpasses 130%.https://t.co/GEbK7jw4fI pic.twitter.com/sczQDztkMT
— BitKE (@BitcoinKE) November 24, 2024
The IMF paints an even grimmer picture saying that ‘under current policies, the general government debt is expected to rise steadily and exceed 140% of GDP by 2032.‘
Tech billionaire, Elon Musk, has likewise expressed concern saying that the cost of servicing the federal debt will absorb tax revenue, leaving nothing for critical needs. According to one analyst, the U.S. government is now paying nearly $1.2 trillion per year in interest on the debt – about 23% of all taxes, tariffs, and fees collected by the government is now going to pay interest on the debt.
WHO OWNS THE U.S DEBT?
The national debt of the United States, also known as the public debt or national deficit, is the total amount of money borrowed by the federal government to finance its operations and activities. pic.twitter.com/z77S2wSyHY
— BitKE (@BitcoinKE) November 24, 2024
According to Musk, the current rate of government spending is putting the U.S. on the fast lane to bankruptcy while government overspending was stoking inflation.
“Interest payments on the national debt are now higher than the entire Defense Department budget and rising,” Musk said, warning that the US is “going bankrupt extremely quickly.”
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