US May Hit New Debt Limit as Early as Jan 14

• The U.S. Treasury Department may need to take "extraordinary measures" as early as Jan. 14 to prevent the United States from defaulting on its debt, Treasury Secretary Janet Yellen told lawmakers.
• U.S. debt is expected to decrease by about $54Bn on Jan. 2 "due to a scheduled redemption of nonmarketable securities held by a federal trust fund associated with Medicare payments," she added. She went on to explain that "Treasury currently expects to reach the new limit between January 14 and January 23, at which time it will be necessary for Treasury to start taking extraordinary measures."
• Under a 2023 budget deal, Congress suspended the debt ceiling until Jan. 1, 2025. The U.S. Treasury will be able to pay its bills for several more months, but Congress will have to address the issue at some point next year.
• Failure to act could prevent the Treasury from paying its debts. A U.S. debt default would likely have severe economic consequences. Notably, if the government hits the debt ceiling limit and the U.S. Treasury does not have the ability to pay its obligations, the negative economic effects would quickly mount and risk triggering a deep recession and financial market catastrophe.
• Not only would this hinder eco-nomic activities, but it would also hurt bondholders. That is, by reaching the limit and failing to pay interest payment to bondholders, the U.S. would be in default, lowering its credit rating and increasing the cost of its debt. Such a scenario would be economically devastating and could plunge the world into a financial crisis as the U.S. government becomes a riskier borrower.
• A debt limit is a cap set by Congress on how much money the U.S. government can borrow. Because the government spends more money than it collects in tax revenue, lawmakers need to periodically tackle the issue - a politically difficult task, as many are reluctant to vote for more debt.

(Sources: Reuters and NCBCM)