Debt Ceiling: Why Some Experts Predict ‘Zero Chance’ of US Default
As negotiations between House Republicans and the White House over the debt ceiling rest at a standstill, some experts believe the fuss being made about the debt, the impasse and the X-date — the day when the federal government runs out of money to pay its bills — are less pressing than people are making them out to be.
During his weekly WisdomTree commentary, Wharton School finance professor Jeremy Siegel addressed the ceiling, boldly claiming, “There is zero chance the debt issue will not get resolved even though there will be posturing and debate right up to the last minute before timelines are extended or the debt limit is raised.”
Siegel’s cavalier views echo those of economist, Quill Intelligence CEO and former Dallas Federal Reserve advisor Danielle DiMartino Booth, who clapped back at Treasury Secretary Janet Yellen’s assertion that June 1 continues to be a firm deadline for Congress to raise the national borrowing limit and that the federal government is unlikely to make it to June 15 before running out of money.
DiMartino Booth tweeted in response to X-date conjecture, posting, “This is a critical read. Take the time as the X-date is not in June. Yellen bluffing (which is her J.O.B.).”
Seemingly productive talks took place recently between negotiators for President Joe Biden and top Republican Kevin McCarthy to try to reach a deal to raise the United States’ $31.4 trillion debt ceiling. However, the two sides remain gridlocked as they try to avoid a devastating default.
“I don’t know if we’ll have a deal today,” House Speaker McCarthy told Fox News on May 23. “We did make progress yesterday, but we still have a number of items that need to get through.” Republicans are demanding that any deal must cut federal spending in exchange for raising the debt ceiling.
While top credit rating agency Fitch Ratings put the United States’ AAA long-term foreign currency issuer default rating on negative on May 24, preeminent bond credit rating business Moody’s Investors Service has yet to follow suit, remaining “confident” a debt failure won’t happen for one simple reason: there has never been a default before.
“We absolutely don’t think there will be a scenario where we cross the X-date and interest payments will be missed,” William Foster, senior vice president and senior credit officer at Moody’s, told CNN. “If we were less confident, we would change our outlook to negative.” Foster said.
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With time running short, Moody’s might have to change its assessment of U.S. debt if the Treasury Department is correct about the June 1 X-date when the country begins to deal with the impact defaulting on the debt will have on financial markets, a looming recession and the U.S.’ reputation as the anchor of global economy.
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