US could face debt crisis as soon as July unless Congress makes a deal

National debt set to soar to $52 trillion by 2033, bipartisan Congressional Budget Office says

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The US Congressional Budget Office warned on Wednesday that the federal government would be at risk of a payment default as soon as July if politicians fail to raise the debt limit.

The Treasury Department is currently using accounting manoeuvres to keep making good on federal obligations after hitting the statutory debt ceiling last month.

While Treasury Secretary Janet Yellen signalled at the time that those measures would last until at least early June, Wednesday’s estimates offer an updated timeline.

“If the debt limit remains unchanged, the government’s ability to borrow using extraordinary measures will be exhausted between July and September 2023,” the non-partisan budget office estimated.

The CBO’s projection for the so-called X-date will provide investors with a new focus for when the federal government will be at risk of a default. Ms Yellen on Tuesday reiterated her warning that an “economic and financial catastrophe” would ensue if Congress does not act.

The budget office highlighted that the “Treasury could run out of funds before July” if tax receipts — including in the crucial April time frame — come in weaker than it projects.

Republicans, who control the House of Representatives, have threatened to hold off on lifting the debt ceiling until Democrats agree to cut future spending. President Joe Biden has refused to negotiate over the issue, but has opened parallel talks on deficit reduction with House Speaker Kevin McCarthy.

Mr Biden on Wednesday blamed his predecessor Donald Trump for sharply increasing the national debt during his four-year term, during which the Republicans passed large tax cuts and then a large emergency spending programme during the Covid-19 pandemic.

“[Under] my predecessor, nearly 25 per cent of the entire national debt accumulated over 200 years was accumulated as a consequence of the tax cuts this last administration,” Mr Biden said. He added that he “will not negotiate” on whether or not the US makes its debt payments.

President Joe Biden delivers remarks on the economy at a union headquarters in Lanham, Maryland, on Wednesday. Reuters

A default on the debt obligations of the world's largest economy would be catastrophic in the US and send shock waves around the world.

The government hit the statutory limit for outstanding debt, $31.4 trillion, on January 19. Wall Street analysts have estimated that the extraordinary accounting measures that the Treasury has available to it to keep under the limit amount to about $500 billion.

Wednesday’s estimates show the debt subject to the limit soaring to $52 trillion by 2033, after the government runs a cumulative budget shortfall of $20.3 trillion over the decade.

By 2033, the US will be running a deficit amounting to 7.3 per cent of gross domestic product, against 5.4 per cent for this year.

Bloomberg contributed to this report.

Updated: February 15, 2023, 9:02 PM
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