According to a recent report from the Bipartisan Policy Center, the United States could face an unprecedented default on its obligations as early as June 2023 if Congress fails to lift the debt limit. The report shows that the US will reach its statutory debt limit by the summer or early fall of 2023, inching up from the center’s previous prediction in June 2022 that the “extraordinary measures” used by the US Treasury to pay the government’s bills would not be exhausted before the third quarter of 2023.
This prediction reflects “considerable uncertainty in our nation’s current economic outlook,” according to Shai Akabas, the center’s director of economic policy. The big spending bill passed in December 2022, an extended pause on student loan repayments, and high interest rates resulting in higher costs to service US debt are contributing factors to this prediction.
The US Treasury has notified Congress that it is resorting to “extraordinary measures” to avoid default, and Treasury Secretary Janet Yellen has warned that it is unlikely that cash and extraordinary measures will be exhausted before early June. Yellen has urged Congress to act in a timely manner to either raise the nation’s $31.4 trillion borrowing authority or suspend the limit for a period of time.
President Joe Biden and new Republican House speaker Kevin McCarthy met earlier this month to discuss the debt limit, but expectations for quick progress are low, as GOP lawmakers push for steep spending cuts in exchange for a debt ceiling deal. The President has accused Republicans of plans to cut Medicare and Social Security programs, but McCarthy and Senate GOP leader Mitch McConnell have denied these allegations.
While some economists have suggested that the Treasury could prioritize certain payments to bondholders in order to buy time for policymakers to resolve the issue, Biden administration officials have said they will not prioritize payments to bondholders if the country passes the “X-date” without an agreement. Yellen has warned that debt payment prioritization is default by another name.
In conclusion, the US could face a default on its debt obligations as early as June if Congress fails to lift the debt limit. While the Treasury is currently using extraordinary measures to avoid default, the Bipartisan Policy Center’s report shows that the US will reach its statutory debt limit in the summer or early fall of 2023. Policymakers have an opportunity to inject certainty into the US and global economy by beginning bipartisan negotiations around the nation’s fiscal health and taking action to uphold the full faith and credit of the United States well before the X-Date.
The Publicade
The Publicade