Yellen says U.S. could hit debt limit by Oct. 18

Warning signs are growing that the United States could face an unprecedented default on its debt obligations.

U.S. Treasury Secretary Janet Yellen on Wednesday warned that the U.S. could default on its debts if Congress did not act promptly. In her letter sent to congressional leaders, Yellen said the Treasury Department will likely exhaust all of its extraordinary measures (to avoid a national default) if Congress has not acted to raise or suspend the debt limit by Oct. 18.

In her opening statement before the Senate Finance Committee on the day, Yellen pointed out that a default would have a devastating impact on the U.S. economy. Yellen urged Congress to tackle the debt limit promptly, adding the U.S. would otherwise lapse into a default for the first time in history. She warned of a financial crisis and economic downturn.

In the U.S., the level of federal limit is set by law. Currently, the federal government’s total debt stands at $28.78 trillion, exceeding the legal limit of $22 trillion. Since Aug. 1, when the federal debt reached the statutory limit, the federal government has not been able to borrow money by issuing bonds. In recent two months, the federal government has managed to avoid a default, using remaining extraordinary measures and cash, but experts warn that it would soon hit a limit. Yellen told Congress that Oct. 18 is likely the date when the measures would be exhausted.

The U.S. has left the global financial market volatile as talks at Congress on raising debt ceiling collapsed many times in the past. Fights over raising the debt limit were settled at the last minute, avoiding a national default. It is widely expected that the two parties will eventually reach an agreement, but major financial companies are scrambling to come up with countermeasures in case of an emergency.


Jae-Dong Yu jarrett@donga.com