The U.S. debt crisis strikes again as Treasury Secretary Yellen recently sent a letter to members of Congress stating that the Treasury Department expects to hit the current debt ceiling of $31.4 trillion as early as January 14, 2024. To prevent a federal government debt default, the Treasury may take "extraordinary measures," but these are only short-term relief tactics. Yellen urged Congress to act swiftly, either raising or suspending the debt limit to maintain America's credit and fiscal stability.
Urgent Debt Situation
In her letter, Yellen pointed out that U.S. debt will decrease by about $54 billion on January 2, 2024, due to the scheduled redemption of non-transferable securities held by federal trust funds related to Medicare payments. However, this does not fully alleviate the issue. The Treasury expects the U.S. to reach the statutory limit between January 14 and January 23, requiring the initiation of extraordinary measures to keep the government operational.
Extraordinary measures are short-term accounting maneuvers used by the Treasury to delay the crisis. But if Congress fails to act in time, once these measures are exhausted, the U.S. will be unable to pay its debts, reaching a so-called "X-date," leading to government default. This would not only severely damage the domestic economy but could also trigger turmoil in global financial markets.
Background and History
In June 2023, U.S. President Biden signed a bill temporarily suspending the debt ceiling until early 2025, while also placing restrictions on federal spending for the fiscal years 2024 and 2025. However, the U.S. government's long-standing reliance on borrowing to maintain operations has made the debt ceiling issue a norm. Since Congress first set a $45 billion debt limit in 1939, it has been raised 103 times.
Currently, the scale of U.S. national debt has exceeded $36 trillion, reaching a new historic high. This enormous debt not only reflects the accumulation of U.S. fiscal deficits but will also exert long-term pressure on future economic policy.
Political Maneuvering and Prospects
The debt ceiling issue is often used as a tool for political maneuvering by both U.S. parties. Former President Trump recently posted on his social media platform Truth Social, calling for Congress to abolish the debt ceiling or extend it to 2029. However, in a recent vote, Congress passed only a short-term spending bill to avoid a government shutdown, yet did not solve the debt ceiling issue.
As the statutory limit approaches, the market will closely watch the progress of negotiations between Congress and the government. If Congress cannot act in time, it could trigger a global financial storm with profound impacts on U.S. international credit.
Currently, the United States is facing multiple challenges, including global economic weakness and domestic inflationary pressures. Resolving the debt ceiling issue has become imperative.
