The U.S. could hit the debt ceiling by Mid-October, says Treasury

If nothing is done, the Treasury is on the verge of default on the debt, most probably between October 15 to November 4. Department of the Treasury’s take: The...

If nothing is done, the Treasury is on the verge of default on the debt, most probably between October 15 to November 4.

Department of the Treasury’s take:

The department undertook extraordinary measures to temporarily stabilize the finances of the U.S. government when the debt limit was reinstated on August 1, 2021. The follow-up debt limit letter to congress issued on September 8 stated the uncertain success of the measures. 

It further proclaimed the challenges faced in estimating the receipts and payments of the government. Pandemic, related monetary reliefs, and other factors have worsened the situation. Based on the recent information, the extraordinary measures and cash will get exhausted by Oct 2021

Salient details from the analysis report:

The recent debt limit analysis report released by Bipartisan Policy Center anticipated the “X-Date” to be in between October 15 and November 4. The organization underlined the need to act immediately to ensure that all the obligations of the state’s government are paid timely. About 40% of the payments will remain due when the government runs out of cash. 

The course of action to be pursued by the Treasury Department is unclear as of now. October 1 is deemed to be a critical day as most of the large payments are due that day, including Military Retirement Trust Fund along with other benefit payments. It is believed that on this day, a significant fall will be seen in the cash reserves. 

If the situation persists, the cost of short-term borrowings will increase for the taxpayers and negatively impact the businesses and the customers. Moreover, any delays in debt payment will adversely affect the state’s economy and international markets.

About the debt:

Everyone is to be blamed for the rising debt. The Trump administration suspended the debt limit three times. The debt was utilized to fund the tax cuts in 2017, and more debt was borrowed during the last year due to the pandemic. 

During the last suspension passed in 2019, the cap was $22 trillion, and now the debt cap is $28.4 trillion. Therefore the Treasury Department has been planning and implementing extraordinary measures to keep the government operations stable.

The debt of $28.4 trillion is higher than what the United States’ gross domestic product is. The Biden government believes that the subsequent debt ceiling suspension should be bipartisan as it applies to previous expenses allocated by the administration.

What can be done?

“At a time when American families, communities, and businesses are still suffering from the effects of the ongoing global pandemic, it would be particularly irresponsible to put the full faith and credit of the United States at risk,” said Treasury Secretary Janet Yellen.

BPC considers that the Department of the Treasury can prioritize the payments on a specific basis, i.e., pay some bills and not all or delay all the obligations. Once enough revenue is generated, then it can clear the dues.

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