Treasury Secretary Janet Yellen warned Congress in a letter that the country could hit its debt ceiling as soon as Jan. 14. This warning follows a contentious fight over a funding bill where President-elect Donald Trump called for the elimination of the debt ceiling. Yellen stated that the debt ceiling could be reached between Jan. 14 and Jan. 23, at which point the Treasury would take extraordinary measures to prevent default. The current debt limit extension is set to end on Jan. 1, with the debt subject to the limit projected to decrease by approximately $54 billion on Jan. 2.
A default would occur if the U.S. failed to pay bondholders, throwing the domestic and global economies into chaos. The U.S. Treasury warns that defaulting on the debt would precipitate another financial crisis, threatening the jobs and savings of Americans. In 2013, the economy lost 1% of GDP when the government came close to default before raising the debt limit.
Congress could eliminate the debt ceiling. President Joe Biden has considered using the 14th Amendment to allow the Treasury to continue paying the country’s debts. The elimination of the debt ceiling has been suggested by Democrats in the past. The issue of the debt limit poses significant economic risks and complexities that require careful consideration and action.
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