The United States is facing a significant risk of default in June if the debt ceiling is not raised or suspended, according to the Congressional Budget Office (CBO). The CBO’s projection is in line with the estimate by the Treasury Department, which has warned that a default on U.S. debt obligations could occur on June 1. The CBO released an update to the Budget Outlook for 2023 to 2033 last week, which updated the agency’s budget projections released in February.
“CBO’s baseline projections are developed in accordance with procedures set in law. Those procedures require the agency to project spending, revenues, deficits, and debt without regard to the statutory limit on the issuance of new federal debt. That limit (now set at $31.4 trillion) was reached on January 19, 2023,” the report details, adding, “CBO estimates that if the limit is not raised or suspended, there is a significant risk that the Treasury will run out of funds at some point in the first two weeks of June.”
The CBO’s estimate is consistent with that of Treasury Secretary Janet Yellen, who warned earlier this month that the Treasury may not be able to pay all of the government’s bills by June 1 “if Congress does not raise or suspend the debt limit before that time.”
The financial world has been watching closely as the U.S. government approaches its debt ceiling, which is the legal limit on the amount of debt the government can issue to finance its operations. The debt ceiling is currently set at $28.4 trillion, and the U.S. government has been using “extraordinary measures” to continue funding the government’s operations since the debt ceiling was reinstated on August 1, 2021.
Many people have warned about the consequences of the U.S. defaulting on its debt obligations. The International Monetary Fund (IMF) said there would be “very serious repercussions.” Federal Reserve Chair Jerome Powell warned of “uncertain and adverse” consequences. The chairman of the U.S. Securities and Exchange Commission (SEC), Gary Gensler, expects “significant” and “lasting effects” on investors, issuers, and markets. Meanwhile, Goldman Sachs believes the consequences will be “catastrophic.”
Former President and 2024 presidential candidate Donald Trump has urged Republican lawmakers to let the U.S. default on its debt if the Democrats do not agree to spending cuts. “It’s better than what we’re doing right now because we’re spending money like drunken sailors,” he said.
To avoid a potential default, the U.S. Congress must raise or suspend the debt ceiling, which would allow the government to continue borrowing and operating. However, to complicate matters, Republicans have said they will not vote to raise the debt ceiling unless Democrats agree to offset the increased borrowing with spending cuts or other budgetary measures.
The situation has the potential to cause significant disruption to the global economy. The U.S. dollar is the world’s reserve currency, and any disruption to its value or stability could lead to a global financial crisis. Additionally, a default by the U.S. government could cause interest rates to rise and make it harder for businesses and individuals to borrow money.
In conclusion, the U.S. government is facing a significant risk of default in June if the debt ceiling is not raised or suspended. The financial world is closely watching the situation, with many people warning of serious consequences if the U.S. defaults on its debt obligations. The situation has the potential to cause significant disruption to the global economy, and it remains to be seen how Congress will resolve the issue.
