The Congressional Budget Office (CBO) released a report on Wednesday, February 15th, warning of a catastrophic default between July and September if the nation’s debt limit isn’t raised in time. This comes after the federal government on January 19th reached its approximately $31.4 trillion debt ceiling, and the Treasury Department has since been using “extraordinary measures” to pay the government’s obligations.
The CBO reported that, if the debt limit remains unchanged, the government’s ability to borrow using extraordinary measures will be exhausted between July and September 2023. However, this date is uncertain due to the timing and amount of revenue collections and outlays over the intervening months. If those receipts fell short of estimated amounts, the extraordinary measures could be exhausted sooner, and the Treasury could run out of funds before July.
According to the Congressional Budget Office, the total deficit over the period of the next ten years will now be $3 trillion larger than they estimated it to be in May. Due to new laws and alterations to the economic forecast, interest costs and spending on obligatory programs have increased. According to the report, debt held by the public would rise from 98% of GDP in 2023 to 118.2% of GDP in 2033, and could skyrocket to 195 percent of GDP by 2053.
The projection from the Congressional Budget Office (CBO) increases the need for a speedy resolution to the political disagreement in Congress regarding the debt ceiling. Unless Democrats agree to spending cuts, some Republicans in the House have refused to raise the debt ceiling. The Biden administration has been vocal in their stance that any discussion of spending should be held separately from the debt ceiling and that it will not be negotiated.
The higher rates could increase the net interest cost on the national debt to about $9 trillion over the next decade, according to estimates by the Peter G. Peterson Foundation. This is up from the record $8.1 trillion that the CBO projected in May 2022 and the $5.4 trillion it projected in July 2021.
Inflation-adjusted economic growth is expected to “come to a halt” in 2023 because of the Federal Reserve’s interest rate hikes. It also expects inflation to decline this year and the unemployment rate to rise through early 2024, reflecting the slowdown in economic growth.
The new projection means Congress may have as few as five months to preserve the country’s ability to borrow to pay its bills.
0. “Treasury Risks July Payment Default If Lawmakers Fail to Raise Debt Limit, CBO Says” Bloomberg, 15 Feb. 2023, https://www.bloomberg.com/news/articles/2023-02-15/us-treasury-risks-a-payment-default-as-soon-as-july-cbo-says
1. “US risks default as soon as July unless debt ceiling is raised, agency estimates” WTVD-TV, 15 Feb. 2023, https://abc11.com/us-risks-default-as-soon-as-july-unless-debt-ceiling-is-raised-age/12820284
2. “Federal Debt and the Statutory Limit, February 2023” Congressional Budget Office, 15 Feb. 2023, https://www.cbo.gov/publication/58906
3. “U.S. has until July-September to avert debt-ceiling breach, CBO estimates” Seeking Alpha, 15 Feb. 2023, https://seekingalpha.com/news/3936604-us-has-until-july-september-to-avert-debt-ceiling-breach-cbo-estimates
4. “US could default on debt between July and September if Congress doesn't act, CBO projects” CNN, 15 Feb. 2023, https://www.cnn.com/2023/02/15/politics/debt-ceiling-default-cbo-congress/index.html
5. “US national debt to rise by $20 trillion over the next 10 years: CBO” Fox Business, 15 Feb. 2023, https://www.foxbusiness.com/politics/us-national-debt-rise-20-trillion-over-next-10-years-cbo
6. “The US is paying a record amount of interest on its debt. It's only going to get worse” WSIL TV, 14 Feb. 2023, https://www.wsiltv.com/news/the-us-is-paying-a-record-amount-of-interest-on-its-debt-its-only-going/article_00dbfbff-dea1-5067-a825-f4c56129db57.html
7. “U.S. has between July and September to raise debt ceiling, CBO warns” The Washington Post, 15 Feb. 2023, https://www.washingtonpost.com/us-policy/2023/02/15/debt-ceiling-deadline-risks/