The United States faces a debt crisis as soon as July 2023, when the Treasury runs out of money to make payments on its debts. That’s according to a new Congressional Budget Office report released Wednesday.
If the Treasury can’t pay its bills, the government would default on its debts and run into a financial crisis that could have devastating consequences for the economy, the Congressional Budget Office projected in its report.
But Congress and President Joe Biden haven’t reached an agreement on how to increase the government’s debt limit, leaving the specter of a default hanging over Washington for months to come. A Reuters/Ipsos poll conducted in February found three-quarters of respondents believed Congress needed to reach a deal to avoid a default.
A debt default is the failure of the Treasury to make payments on its obligations, such as debts owed to investors in US government bonds or loans made to the federal government by the private sector.
It would result in a financial crisis and send shock waves through the global economy, as well as negatively impact the economy’s productivity, the CEA said. Those effects include rising interest rates, a slowing in economic growth and higher borrowing costs for consumers.
The specter of a default has been a frequent cause of brinkmanship on the issue, with the United States hitting its debt ceiling in 1995 under President Bill Clinton and again in 2011 under Barack Obama, when Standard & Poor’s downgraded the country’s credit rating. This time, however, the political landscape is different. Republicans control the House and have vowed not to raise the debt ceiling until they get unspecified spending cuts in return, which could be unacceptable to Democrats.
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