Economic Alarm: Treasury Secretary Warns of Looming Debt Ceiling Crisis

The United States is on the brink of a potential economic crisis as it rapidly nears its debt ceiling limit. Treasury Secretary Janet Yellen has issued a stark warning about the severe dangers of Congressional inaction, predicting that the U.S. could reach its borrowing limit between January 14 and January 23, 2025. If Congress fails to address the issue, the Treasury will be forced to implement extraordinary measures to prevent a catastrophic default on the nation’s debt.

The debt ceiling, which caps the amount the U.S. Treasury can borrow to meet financial obligations, was temporarily suspended in June 2023 under a bipartisan agreement between then-House Speaker Kevin McCarthy and President Joe Biden. However, this suspension expires on January 2, 2025, reinstating borrowing restrictions and creating a looming deadline for Congressional action.

Economists and financial experts are sounding alarms over the potential fallout of hitting or surpassing the debt ceiling. Mark Zandi, Chief Economist at Moody’s Analytics, warns that even a short-term default could trigger an economic crisis marked by surging interest rates and a sharp decline in stock market values. The repercussions could include:

• A contraction in real GDP
• The loss of nearly 2 million jobs
• An unemployment rate climbing to almost 5%
• Persistently higher interest costs for the federal government

The global economy is also at significant risk. Goldman Sachs economists estimate that breaching the debt ceiling would halt approximately 10% of U.S. economic activity, potentially plunging both domestic and global markets into recession.

Former Treasury Secretary Jacob Lew underscored the severity of the situation, asserting, “A default would almost certainly guarantee a recession.” The White House’s analysis further suggests that breaching the debt ceiling could result in widespread job losses and substantial damage to the U.S. economy. Even approaching the limit without resolution could roil financial markets, as past instances have demonstrated.

With the clock ticking, experts and policymakers are urging swift Congressional action to avert a financial disaster that could have long-lasting implications for both the U.S. and global economies.