Outgoing Treasury Secretary Janet Yellen is announcing that she’s planning to take “extraordinary measures” to save the U.S. economy beginning on January 21 — the day after President-elect Donald Trump will officially begin his second term in office.
Politico reported Friday that Yellen made the announcement in a letter to congressional leaders including House Speaker Mike Johnson (R-La.), Senate Majority Leader John Thune (R-S.D.), House Minority Leader Hakeem Jeffries (D-N.Y.) and Senate Minority Leader Chuck Schumer (D-N.Y.). The letter comes as the United States prepares to reach the statutory limit on borrowing, which Yellen wrote last month would happen between January 14 and January 23. She warned in that letter that the Department of the Treasury would need to take “extraordinary measures” in order to avoid a debt default, should Congress fail to raise the debt ceiling before then.
In her latest letter, Yellen said she would begin taking those “extraordinary measures” next Tuesday, which will reportedly include tapping into federal retirement funds that aren’t immediately needed to pay out benefits to retired postal workers and other federal employees. She also plans to temporarily suspend investments into those funds in order to keep the U.S. current on its debt service obligations.
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“The period of time that extraordinary measures may last is subject to considerable uncertainty, including the challenges of forecasting the payments and receipts of the U.S. Government months into the future,” she wrote in her January 17 letter to Congress.
According to Politico, Yellen’s move could kick the can down the road to summer of 2025, meaning Congress wouldn’t need to pass legislation raising the debt ceiling for several more months. However, that could prove complicated for Speaker Johnson, who only barely managed to get the 218 votes necessary to keep his gavel earlier this month. Nearly a dozen far-right members of the House Republican Conference indicated that their support for Johnson was conditional, and would depend on whether he adheres to strict fiscal policy — like only agreeing to new federal spending if it was paired with offsetting budget cuts.
And because Johnson will have just a one-seat majority to work with assuming Reps. Elise Stefanik (R-N.Y.) and Mike Waltz (R-Fla.) join the Trump administration as United Nations ambassador and National Security Advisor respectively, it isn’t likely he’ll be able to raise the debt ceiling solely with Republican votes. This could mean that a debt ceiling increase — which is needed to keep the global economy stable — could potentially cost Johnson the speakership.
On Thursday, the Congressional Research Service (CRS) published a paper showing the U.S. had $36.1 trillion in debt, with $28.8 trillion of that debt “held by the public.” But the CRS emphasized in the first paragraph of that paper that the vast majority of debt held by the public is just U.S. Treasury securities. Institutional investors (like world governments and the super-rich) prefer U.S. Treasury securities to bank deposits, as the latter are only guaranteed up to $250,000 by the FDIC whereas U.S. Treasury securities are guaranteed by the full faith and credit of the U.S. government.
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“[W]e might want to look at the national debt from a different perspective. In particular, it seems more accurate to view the national debt less as form of debt and more as a form of money in circulation,” the Federal Reserve Bank of St. Louis wrote in 2020. “Investors value the securities making up the national debt in the same way individuals value money — as a medium of exchange and a safe store of wealth. The idea of having to pay back money already in circulation makes little sense, in this context.”
Should Congress fail to raise the debt ceiling and make the U.S. default on its debt service obligations, it could throw the global economy into chaos, as institutional investors across the world would suddenly no longer have their U.S. Treasury securities backed by the full faith and credit of the U.S. government. Trump has previously called for the abolition of the federal debt ceiling, saying “it doesn’t mean anything, except psychologically.”
The debt ceiling was initially created by Congress during World War I, after fiscal conservatives championed for its inclusion in the Second Liberty Bond Act of 1917. At the time, the U.S. was still bound to the gold standard, which President Franklin Delano Roosevelt did away with in the 1930s. President Richard Nixon ending the Bretton Woods Agreement in the 1970s officially delinked the U.S. dollar from gold. How much money is in circulation is now entirely up to Congress, which has the sole power to “coin money” under the U.S. Constitution.
Click here to read Politico’s full report.
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