Volkswacht Bodensee - US Treasury to take 'extraordinary measures' to avoid debt default

With the government reaching its borrowing limit, the department would start making the moves on Tuesday, Yellen said in a letter to congressional leaders.

Trump's administration will have to grapple with the issue of the debt ceiling -- the limit on government borrowing to pay bills already incurred.

But the lifting of this bar, while often routine in the past, has become a contentious issue.

On Friday, Yellen said: "The period of time that extraordinary measures may last is subject to considerable uncertainty."

She noted there are challenges to forecasting the government's payments and revenue months into the future.

"I respectfully urge Congress to act promptly to protect the full faith and credit of the United States," Yellen wrote.

For now, she said the Treasury would hold off investments in the Civil Service Retirement and Disability Fund not immediately required to pay beneficiaries.

The fund will be made whole once the debt limit is raised or suspended.

"Federal retirees and employees will be unaffected by these actions," she said.

In mid-2023, US lawmakers voted to suspend the debt limit after weeks of fraught negotiations, to eliminate the threat of a default.

The limit was reinstated on January 2 and set at $36.1 trillion, matching the total debt outstanding on the previous day.

During December budget negotiations in Congress, Trump insisted the debt ceiling be raised or even eliminated altogether, although he was unsuccessful at the time.

On Thursday, Trump's Treasury secretary nominee Scott Bessent told lawmakers at his confirmation hearing that he would work with Trump to remove the limit if the incoming president wanted to do so.

Extraordinary measures by the Treasury will allow it to continue financing the government's activities.

But if the debt ceiling is not raised or suspended before the tools are exhausted, the government risks defaulting on payment obligations.

This has profound implications for the world's biggest economy.

Earlier this month, Fitch Ratings said the United States faces "significant fiscal policy challenges in 2025."

It pointed to the debt limit, appropriations and "tax cuts in the context of already large deficits and an increasing debt burden."

"We believe it is unlikely that these will be resolved expeditiously because of long-standing weaknesses in the federal government's budgetary process and a narrow Republican House majority," Fitch added.

A.Kunz--VB