 "A traffic light countdown timer is seen in front of the US Capitol building, ahead of the election of the 47th US president on November 5, in Washington, US, September 30, 2024. File Image/Reuters")
The United States is at the risk of defaulting on its debt by August if certain steps are not taken, according to a Congressional watchdog.
If the United States defaults on its debt this year, that would be a first in US history and may hasten the looming economic crisis that several commentators say is already on the horizon. It may shatter investors’ confidence, lead to a fall in US bonds’ yield, and lead to millions of people losing jobs, and government workers and pensioners going without payments, and bring the federal governmental activities to a halt.
In an analysis on Wednesday, the Congressional Budget Office (CBO) said that the the US Treasury’s ability to borrow will be exhaused by August or September if the debt limit is not raised or suspended.
The CBO further said that the such a default may come as early as late May or June if the US government’s borrowing needs are significantly greater than CBO’s projections.
In the United States, the federal government’s capacity to borrow money is limited by a ‘debt ceiling’. The ceiling has to be periodically lifted or suspended by the US Congress. The failure to do so results in government shutdown and puts the government at risk of defaulting on its debt.
Currently, the US federal government is already past the debt ceiling and is using ’extraordinary measures’ to keep borrowing to pay debt and run the government. But the CBO has said that even such measures are set to expire in August or September or as early as late May if the debt ceiling is not lifted or suspended.
Impact Shorts
More ShortsEven though Republicans have traditionally been fiscally conservatives who don’t like deficits, US President Donald Trump’s agenda is set to plunge the country into more debt. His unfunded tax cuts are set to bring a deficit of $10 trillion over the next decade that no analysts expect can be covered by the savings he has promised by cutting purported wasteful government expenditure, according to The Daily Telegraph.
For context, since 2008, the federal deficit has risen from around $10 trillion to $36 trillion.
Currently, the Republicans and Democrats are divided over how to address the question of debt ceiling.
Senate Majority Leader John Thune on Tuesday said there is “consensus forming” around attaching a debt-limit provision to the tax package as part of a so-called reconciliation bill, which the Republican Party could pass without Democratic votes, but it is not clear if the plan has sufficient support among Republican senators, according to Bloomberg.
Democrats have said they are willing to work with Republicans to extend the debt ceiling but not as a pretext to deliver tax cuts that they say will mostly help just the wealthiest. They maintain that Republicans must work with them to protect measures like social security and health benefits.