Experts Say US Could Default on Its Debt Sooner Than Anticipated
Written by
Yaël Bizouati-Kennedy
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Nicholas Morine
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Analysts are raising the alarm about the looming possibility of the U.S. defaulting on its debt earlier than anticipated. If that were to happen, the consequences could be disastrous for the American economy.
The country hit the debt ceiling on Jan. 19, prompting Treasury Secretary Janet Yellen to start enacting “extraordinary measures.”
In February, the Congressional Budget Office (CBO) warned that the U.S. government will exhaust its “extraordinary measures” if the debt ceiling isn’t raised, sometime between July and September, resulting — in part — in its inability to fully pay some of its obligations.
But now, several analysts believe the measures’ exhaustion and the ensuing default (the so-called X-date) could come earlier due to lower than expected tax receipts.
CNBC recently reported Goldman Sachs analysts wrote that their “base case remains for the debt limit deadline to fall in late July” as long as tax receipts only fall by 30%. If federal revenues fall by 35%, however, the X-date could move up to “early June.”
The debt limit was raised to approximately $31.381 trillion on Dec. 16, 2021, but a Republican-led Congress following the midterm elections is now looking for spending cuts in exchange for support in raising the debt ceiling, something most Democrats argue against.
On April 26, House Republicans passed the Limit, Save, Grow Act — a bill to increase the debt ceiling while cutting federal government spending.
As ABC News reported, “While the legislation has no prospect of becoming law, GOP leaders hope it will help force negotiations with Democrats.” Yet, negotiations have been at a standstill for months and now, the clock is ticking fast.
In response, press secretary Karine Jean-Pierre said the bill would cut veterans’ health care, education, Meals on Wheels, and public safety.
“President Biden will never force middle class and working families to bear the burden of tax cuts for the wealthiest, as this bill does. The President has made clear this bill has no chance of becoming law,” she said, according to a transcript of her remarks.
“In our history, we have never defaulted on our debt or failed to pay our bills,” she said. “Economists have warned that default could spark a dangerous financial crisis, lead to a recession costing millions of Americans their jobs, endanger hard-working Americans’ retirement savings, and increase long-term federal borrowing costs, adding to deficits and debt.”
If the U.S. were to default on its debt, it would have dire implications for the U.S. economy.
As Treasury Secretary Janet Yellen said in February: “A default on our debt would produce an economic and financial catastrophe.”
“Many of your residents could ultimately lose their jobs. Household payments on mortgages, auto loans, and credit cards would rise, and American businesses would see credit markets deteriorate. On top of that, it is unlikely that the federal government would be able to issue payments to millions of Americans, including our military families and seniors who rely on Social Security. In the longer term, a default would raise the cost of borrowing into perpetuity. Future investments — including public investments — would become substantially more costly,” she said, according to her prepared remarks.
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