Treasury Secretary Janet Yellen Warns of Potential U.S. Government Default as Legal Borrowing Capacity is Reached

The United States has reached its legal borrowing capacity, according to Treasury Secretary Janet Yellen. In a letter to House Speaker Kevin McCarthy, Yellen wrote that the government must now rely on “extraordinary measures” to avoid a catastrophic default for the next few months.

The Treasury Department projects that the federal government will reach its legal borrowing capacity on Thursday, a cap that has been increased roughly 80 times since the 1960s. The “extraordinary measures” put a hold on contributions and investment redemptions for government workers’ retirement and health.

Though markets remain calm, the countdown to a possible U.S. government default is raising alarms. President Joe Biden and House Republicans are at odds over how to address the situation, and it is uncertain whether the United States can sidestep a potential economic crisis.

Yellen warned that the period of time the “extraordinary measures” may last is uncertain. She said the Treasury Department is unable to accurately forecast the payments and receipts of the U.S. Government months into the future.

The Treasury Department is urging Congress to raise the debt limit as soon as possible to avoid a potential economic crisis. It remains to be seen how the situation will be addressed and what the outcome will be.