United States Breaking news
The United States' debt ceiling was reinstated Thursday-a precursor to a bruising political fight in 2025. Now that the national debt has reached $36.2 trillion, President-elect Donald Trump is demanding action-right now-and pressing congressional Republicans to act before he is sworn in on January 20. But lawmakers have little space between now and when potential default becomes a more serious threat.
Understanding the Debt Ceiling and the Current Timeline : The debt ceiling is the limit of how much the federal government is authorized to borrow to pay its bills. The new limit, reinstated on January 4, 2025, reflects the outstanding debt from the previous day-a number that has increased substantially since the cap was suspended in June 2023 under the Fiscal Responsibility Act.
A temporary technical reprieve has given the Treasury Department some breathing room. Treasury Secretary Janet Yellen confirmed that extraordinary measures, along with scheduled securities redemptions, would delay reaching the debt ceiling until between January 14 and January 23. Once this limit is reached, the Treasury will have to employ extraordinary measures to continue meeting federal obligations, such as Social Security benefits and salaries for federal workers.
The timeline to avoid default bleeds into the second quarter of 2025, largely thanks to the government's ample cash reserves, forthcoming tax revenues, and extraordinary measures. This is only a Band-Aid solution, according to Shai Akabas, executive director of the Bipartisan Policy Center's economic program.
What's at Stake: The Fallout of Default
The consequences of a default would be a new frontier in the history of the US. The Treasury would have to decide which expenses to pay as revenues become available each day, and delays in important services related to Social Security and Medicare would likely occur. It could also shake global financial markets, raising borrowing costs and jeopardizing economic stability around the world.
Trump's Push for Immediate Action
President-elect Trump has been vocal about addressing the debt ceiling issue before his inauguration. He criticized Democrats on Truth Social, citing the "potential disaster they are creating" and pushing Republicans to take action. Trump's urgent calls for action have upped the ante on GOP leaders already wrestling with internal divisions in their party.
In December, Trump sank a bipartisan temporary government funding agreement by insisting on tying the debt ceiling to it. The result was a short-term funding bill devoid of any provisions for a debt ceiling, leaving it unsettled as Republicans started their rule in Congress in January.
Even with control of Capitol Hill, the Republican Party faces high hurdles in taking up a debt ceiling. House Speaker Mike Johnson will have to navigate the razor-thin GOP majority in the House, where conservative lawmakers insist on spending cuts as a condition for hiking the debt ceiling.
One idea is to increase the debt limit by $1.5 trillion in 2025 as part of a larger reconciliation package that could include border security and energy measures. It would also contain $2.5 trillion in mandatory spending cuts to entice fiscal conservatives. Yet even that increase would only provide temporary relief, with the U.S. possibly hitting the new limit by the middle of 2026, analysts like Akabas caution.
Reconciliation, the process that allows certain budget-related legislation to pass the Senate with a simple majority, is a key tool for Republicans. But putting together a package that can please both moderates and conservatives without generating a backlash will be no easy task.
The Road Ahead: Navigating the Debt Ceiling Crisis
The reinstatement of the debt ceiling showcases another recurring problem in US governance: fiscal responsibility versus political reality. Republicans have to contend with internal divisions, partisan tension, and growing public scrutiny to avert this historic default.
As the January 20 inauguration of President-elect Trump approaches, the pressure on lawmakers to act decisively will only intensify. Whether through bipartisan compromise or unilateral action, resolving the debt ceiling dilemma is a test of leadership that will define 2025.
With the clock ticking, all eyes are on Congress to see how the nation's leaders will rise to this monumental challenge. Will they find a path forward to avoid default, or will partisan gridlock plunge the U.S. into uncharted territory? Stay tuned as this pivotal story unfolds.