The government could default in July, or even earlier. The nonpartisan Congressional Budget Office issued a new estimate of how long the Treasury Department can sustain its extraordinary measures to prevent a debt default: Five to eight more months.
The CBO said the Treasury Department will exhaust its ability to pay all of its bills sometime between July and September unless the current $31.4 trillion cap on borrowing is raised or suspended.
If Congress does not pass a debt ceiling increase before these measures are exhausted, the government will have to delay certain payments, default on its debt, or both, CBO said.
The report could complicate ongoing discussions in Congress to raise or suspend the debt ceiling.
In a report issued alongside its annual budget outlook, the CBO cautioned that a historic federal debt default could occur before July if revenue flowing into the Treasury in April – when most Americans typically submit annual income tax filings – lags expectations.
The pace of incoming revenue, coupled with the performance of the U.S. economy in coming months, makes it difficult for government officials to predict the exact “X-date,” when the Treasury could begin to default on many debt payments without action by Congress.
The latest projection notes that the final date will be determined by tax revenues the IRS receives in April. Should those revenues decline significantly from CBO’s estimates, “the extraordinary measures could be exhausted sooner, and Treasury could run out of funds before July.”
Last month, the U.S. hit its debt ceiling when it reached its $31.4 trillion borrowing limit.
The government has been staying afloat thanks to the Treasury Department’s “extraordinary measures.”
If the U.S. does default, the stock market could get rattled, mortgage rates could shoot up, and the country could head into a recession.
So now the focus is on Congress, where Republicans and Democrats will have to reach an agreement in less than five months.