The clock is now ticking on the nation’s debt ceiling drama.
Congress is gearing up for a debt ceiling standoff.
The U.S. is expected to hit its borrowing cap as soon as today, Thursday. But it will not immediately start to default on its debt and set off a financial crisis.
But it does mean that Congress now has to get serious about negotiating a solution to the debt ceiling crisis, which is not expected to be easy.
Like a credit card max limit, the federal government only has so much. In this case, $31.4 trillion, that the government can spend on bills.
When the debt limit is hit, if the U.S. goes past its max to try to pay off its obligations, it goes into default.
The U.S. will reach its debt limit on Thursday, Treasury Secretary Janet Yellen wrote in a letter to House Speaker Kevin McCarthy last week. But lawmakers have a few months to negotiate until the government defaults.
Once the debt limit is reached, the Treasury Department will begin implementing extraordinary measures to delay a default.
Default would be unprecedented, and could take a huge hit on global confidence in the U.S. dollar. It could also trigger higher interest rates, a drop in stocks, and other kinds of economic distress, like a recession.
A default would wreak havoc on the economy and the global financial markets, as well as raise borrowing costs.
Even the threat of one in 2011 caused the only credit rating downgrade in the nation’s history.
It is unlikely that the government will exhaust its money and the extraordinary measures before early June. But there is “considerable uncertainty” around that forecast, according to Yellen. It depends in part on how much 2022 tax revenue the government collects this spring.
If the government is no longer able to borrow, it would not have enough money to pay all its bills in full and on time.
This means the government will likely have to temporarily delay payments or default on some of its commitments, potentially affecting Social Security payments, veterans’ benefits and federal employees’ salaries, among others.