Debt Ceiling Looms: US Risks Defaulting on Payment Obligations
Debt Ceiling Suspension Ends in January
The United States is on the cusp of facing its debt ceiling as early as mid-January, according to Treasury Secretary Janet Yellen. She has urged Congress to "act to protect the full faith and credit" of the country, warning that the path forward could be contentious.
Uncharted Territory
The debt ceiling suspension, which was lifted in December, will expire on January 1, 2023. This means that a new limit will be set, matching the amount of debt issued by the Treasury Department. However, the process of raising the ceiling has been a thorny issue in recent years, with Congress divided on the matter.
Extraordinary Measures
Yellen has warned that the Treasury Department will need to take extraordinary measures to continue financing the government’s activities and prevent defaulting on its obligations. These measures will be necessary if the debt ceiling is reached, as early as January 14 to January 23.
Debt Reduction
Interestingly, the United States is not expected to hit the debt limit once the suspension is over. The country’s outstanding debt is projected to decrease by around $54 billion on January 2, according to Yellen. This is largely due to a scheduled redemption of nonmarketable securities held by a federal trust fund associated with Medicare payments.
A History of Debt Ceiling Suspensions
Congress has raised the debt ceiling more than 100 times to allow the government to meet its spending commitments. However, conservatives are generally opposed to increasing the country’s massive borrowing, which currently stands at $36.2 trillion. Multiple Republicans have never voted for a hike.
Consequences of Default
If the debt ceiling is not raised or suspended before the Treasury’s tools are exhausted, the government risks defaulting on payment obligations. This would have profound implications for the world’s biggest economy.
Conclusion
The US is at a crossroads, with the debt ceiling suspension ending in January. It is crucial that Congress acts to protect the full faith and credit of the country. The consequences of default would be severe, and it is essential that policymakers work together to find a solution.
FAQs
- What is the debt ceiling?
The debt ceiling is a limit on government borrowing to pay for bills already incurred. - What is the current debt ceiling?
The current debt ceiling is $36.2 trillion. - What is the expected impact of default?
Defaulting on payment obligations would have severe consequences for the world’s biggest economy. - What is the deadline for raising the debt ceiling?
The debt ceiling suspension ends on January 1, 2023, and extraordinary measures will be necessary to prevent defaulting on obligations.