Yellen warns of debt limit breach, US Treasury to take "extraordinary measures" on first day of Trump's presidency.

In a letter to congressional leaders on Friday, US Treasury Secretary Yellen stated that the US government will reach the statutory debt limit on January 21st and begin taking "extraordinary measures" to avoid breaching the limit and potential catastrophic default risks. Yellen wrote in the letter, "The duration of these extraordinary measures will be subject to considerable uncertainty, including the challenges of predicting the government's spending and revenue over the coming months." Yellen stated that the Treasury Department will suspend investments in two government employee benefit funds until March 14th to reclaim borrowing capacity under the $36.1 trillion debt limit. As of Thursday, the Treasury Department reported borrowing at $36.08 trillion. This move will temporarily pause the payment of new funds to federal employee retirement and disability funds as well as the Postal Service Retiree Health Benefits Fund that do not require immediate funding. Yellen noted that there is "considerable uncertainty" about how long these measures will last and urged Congress to raise or suspend the debt limit "to protect America's full faith and credit." At the end of December last year, Yellen had suggested that the debt limit might be reached between January 14th and 23rd, as Congress chose not to include an extension or repeal of the debt limit in the budget deal reached at the last minute towards the end of the year. Trump himself had urged lawmakers to extend or abolish the debt limit, but later criticized failing to do so earlier as "one of the dumbest political decisions in years." However, many Republican lawmakers see this limit as a crucial leverage point in fiscal negotiations. The debt limit issue presents an early challenge for Yellen's expected successor, Scott Bessent, the former hedge fund manager nominated by Trump as Treasury Secretary. Bessent stated at his confirmation hearing before the Senate on Thursday that the limit is a "subtle convention," but he would work with Congress and the White House to achieve Trump's goal if he wants to eliminate it. The US Treasury has several special balance sheet measures that can be used to avoid default, and budget analysts suggest that these measures could last for several months, depending on the strength of tax revenue. Ultimately, if the debt limit cannot be raised, suspended, or eliminated, the Treasury may be unable to meet all of its debt obligations. A US default could have serious economic consequences. The debt limit is the cap set by Congress on how much money the US government can borrow. Due to government expenditures consistently exceeding revenues, lawmakers need to address this issue regularly, but it is a challenging task politically, as many are unwilling to vote for increasing the debt limit. The history of the debt limit dates back to 1917 when Congress granted the Treasury Department greater borrowing flexibility to fund the US's participation in World War I, but with limitations. In 1939, Congress first set a modern limit on the total debt at $45 billion. Since then, due to spending surpassing tax revenue, Congress has approved raising the debt limit 103 times. As of October, public debt was at 98% of the US GDP, compared to 32% in October 2001.