When is the debt ceiling deadline? What could happen if the debt ceiling isn’t raised?
The Treasury is expected to use up extraordinary financial tools to keep the US from defaulting by early June. Here’s what could happen in the aftermath.
Secretary Janet Yellen informed Congress in January that the US Treasury would start using extraordinary measures to shift funds around to meet the nation’s financial obligations. She called on Congress to “act promptly” and pass legislation to increase the debt ceiling “to protect the full faith and credit of the United States.”
Yellen has warned lawmakers “the period of time that extraordinary measures may last is subject to considerable uncertainty,” but the US may not be able to fulfil its financial obligations as soon as early June.
Should the nation hit the “X Date,” the day when the federal government would run out of money and no longer be able to pay its bills, the consequences could be dire.
When is the debt ceiling deadline?
The US Treasury began extraordinary measures on 19 January. Since then, Republican lawmakers have been asking for cuts to federal spending in order to raise the debt ceiling, finally giving the White House their proposal in late-April. The 320-page plan dubbed ‘Limit, Save, Grow, Act of 2023′ would cut spending by $4.5 trillion over the next ten years.
In exchange for agreeing to their demands, Republican lawmakers in Congress would vote to raise the debt ceiling by $1.5 trillion which would keep the federal government funded for a little less than a year. The US is currently on track to run out of money by as soon as 1 June without an agreement, however, the exact date is always difficult to determine. On Friday 26 May, Yellen moved the expected X Date from 1 June to 5 June, giving a little more breathing room...but not a lot.
What could happen if the debt ceiling isn’t raised?
This isn’t the first time that lawmakers have played chicken with the hitting the “X Date.” Those have had their own economic consequences for the US public even resulting in the US credit rating being downgraded for the first time ever. The 2011 standoff is estimated to have raised borrowing costs by a total of $1.3 billion that fiscal year according to the Government Accountability Office (GAO).
Going over the financial cliff and forcing the federal government to default would have even more dire and far-ranging consequences economists predict. Domestic and international markets depend on the stability, both economically and politically, of the US. If debt instruments issued by the US Treasury are no longer considered perfectly safe demand could drop and interest rates would rise even in the event of a perceived threat of default.
Those increased borrowing costs would be passed onto the public with higher interest rates across the board for business, car and home loans as well as on credit card balances. The national debt could significantly expand as the government would have to pay more to borrow in the future.
Additionally, institutions that hold large amounts of Treasuries could see the value of those drop which would potentially in turn tighten credit as balance sheets shrink.
The end result could be something in line with the Great Recession according to a 2023 report by Moody’s Analytics. GDP they estimated could drop by 4 percent, with a loss of $12 trillion in household wealth as the stock markets tank, possibly plummeting by as much as a third. Mass layoffs would also ensue with almost 6 million jobs vanishing, helping drive unemployment over 7 percent.
The effects could be long lasting as well. The White House Council of Economic Advisers (CEA) warned that an actual default could keep the unemployment rate elevated for between two and four years.