While most people and the media have been focused on the inauguration of President Donald Trump, behind the scenes, there’s a crisis lurking in the US that needs sorting out…and fast.

On Friday 18 January, the now-former secretary of the US treasury – Janet Yellen – warned the US could hit their “Debt Ceiling” on 21 January 2025.

Yellen further went on to advise the US Treasury to start “extraordinary measures.”

So, what does this mean?

The “Debt Ceiling” explained…

Investopedia explains the Debt Ceiling as “the maximum amount of money that the United States can borrow cumulatively to meet its existing legal obligations”.

Once the debt ceiling is reached, US Congress must raise the debt limit to continue borrowing.

It’s no secret the US is addicted to debt. After all, total US debt has soared from $23.2 trillion to $36.2 trillion since 2020. That’s $13 trillion or a 57% increase in just five years!

Now, the US Debt Ceiling crisis is nothing new.

In June 2023, we saw a similar situation which nearly resulted in a US default. But congress intervened and suspended the debt ceiling until January 2025 (where we are today).

So, why doesn’t the US stop borrowing?

In short…It can’t!

Because US spending is out of control.

For example, the US deficit reached $1.8 trillion in 2024, or 6.4% of GDP – levels not seen since World War 2.

A big part of the deficit is interest payments on US debt.

In 2024, interest payments totalled over $1 trillion, due to rising debt and higher interest rates. That’s more than the US spends on its military. It’s also not far off from what the US spends on social security.

And interest payments on debt aren’t slowing down any time soon. This year, net interest payments as a % of GDP are set to reach a record in 2025 – doubling WW2 levels.

What “extraordinary measures” can the US take right now?

One measure the US government can take is suspend daily reinvestment of certain funds. The government can pause investments in certain funds to create room for more borrowing. This is what happened in 2021, when the government borrowed $262 billion, which it repaid later that year.

The thing is these measures will continue until 14 March. So, they simply buy time. They don’t increase the debt limit or change government spending. And the longer these “extraordinary measures” go on, the closer the US government gets to defaulting.

So, what happens if US Congress doesn’t raise the debt ceiling by 14 March?

It will be unable to meet its obligations, and the Treasury would have to choose which bills to pay.

In a worst-case scenario, Social Security would collapse, and the US would be unable to make interest payments. And this results in a US bankruptcy.

Sure, Trump has promised to rein in wasteful spending and reduce the massive debt pile. But it’s easier said than done.

So, basically, Congress doesn’t have many options other than to raise the debt limit – like in June 2023 and all previous times this crisis popped up.

However, the reality is raising the debt ceiling once again doesn’t solve the US’s debt crisis. It’s just simply kicking the can down the road. And it wouldn’t surprise me if we see the re-emergence of the “debt ceiling crisis” in a year or two.

In the meantime, I expect volatility in the markets (particularly bonds and stocks) to increase while the US government tries to resolve its debt ceiling. The JSE is no exception.

On the other hand, safe havens such as gold and silver should benefit from the uncertainty. And of course, gold miners such as Pan Af (we hold in the Red Hot Penny Shares portfolio), which just hit a new all-time high.

Additionally, you can take advantage of the volatility in the markets to buy more shares in quality companies. Get my Red Hot Penny list of best buys out now – just sign up here…