Last summer, as politicians debated the debt ceiling, many Americans trusted Congress not to let the country run out of cash and default. After all, for the sake of the American people, both parties need to agree, and Treasury Secretary Janet Yellen is just calling in for advice. However, by the end of the 2023 debt ceiling pause in January, the situation may not be so certain.
The U.S. government continues to spend eye-popping amounts of money, but by early January 2025, the country will also be wrapping up an election — just months after the last presidential campaign ended with Joe Biden replacing Donald Trump. That’s exactly it.
So the Bipartisan Policy Committee (BPC) is looking at its calendar to see which date will be marked with an “X.”
“X date” is the date when the U.S. assumes it runs out of cash, that is, the Treasury uses up all its resources and the government has to default on its loans. The BPC may set this date at the end of 2025.
Many experts believe that the situation is not serious enough at this stage that the United States will default – the United States is too big and powerful for that to happen.
But the experts wealth Respondents said politicians play a “scare game” every year, with Wall Street and global financial markets footing the bill.
While the debt ceiling is unlikely to collapse immediately, Congress is getting closer to the cliff.
A cherry on top
“The debt ceiling is the metaphorical cherry on top of fiscal policy-driven economic uncertainty,” said Shai Akabas, executive director of economic policy at BPC.
He warned that without a confirmed Treasury secretary next year (if Trump wins), the department could face an extremely unstable situation.
Federal borrowing is expected to reach $243 billion this quarter, with $847 billion net from July to September.
This has heightened concerns about the long-term impact on the U.S. fiscal outlook.
The Congressional Budget Office estimates that the debt-to-GDP ratio will reach 166% by 2054, reaching $141.1 trillion.
For Columbia University professor Brett House, these conversations are at the top of the agenda because of the election timing, not because the U.S. is more likely to reach “X date” now than in the past.
“Congress has done nothing more or less on many aspects of the budget,” he told wealth.
“Could the car crash? Absolutely. Do I think it’s possible? No. .
This cycle of panic ultimately “undercuts [U.S.] Political and policy processes ultimately undermine the attractiveness of U.S. debt and the dollar,” he added.
Differences are growing
While BPC Deputy Director for Economic Policy Andrew Lautz agrees with the House of Representatives that the U.S. is unlikely to reach Date problems arising in the economy.
“We’re seeing a growing divide,” Lautz told wealth From the think tank base in Washington, D.C.
“Congress is spending more time than in previous decades on the basic issues of governance: fixing the debt ceiling, funding the government every year. We are constantly threatened with shutdowns. When you combine that with managing our 34 trillion These should be relatively fundamental aspects of governance when compared to the larger aspects of USD Treasuries.
Lautz added that such internal strife often creates unnecessary “unease” in domestic and global financial markets.
“The fight between the two parties… continued until the very last moment, and uneasiness in domestic financial markets became even more intense. Usually at the last moment – or too close to X date for comfort – there would be A solution,” he said.
Indeed, last spring, Citigroup CEO Jane Fraser said specific debt-ceiling talks were “even more concerning” than before, while JPMorgan’s Dimon said the bank began holding weekly meetings to discuss Possible consequences if agreement is not reached.
Morgan Stanley noted that the S&P 500 “struggled” during the weeks of the debt ceiling debate, with a marginal return of just 0.4%.
“Like some of the other challenges the world is facing right now, it feels like a slow-moving crisis now, but it’s hard to know when it will turn into a fast-moving crisis,” Lautz added.
time to change
The back-and-forth standoff with the U.S. economy is not the experiment the House or Lautz want to see repeated, but they cautioned that experts should be cautious about pushing for changes without detailed knowledge of the circumstances.
“We’ve never allowed ourselves to go past X date before,” Lautz said. “Despite the vast differences between Republicans and Democrats on the overall direction of spending and taxes in this country, they have come together time and time again — even at or near the last minute — to avert disaster.
“But the bar is low — we need to do better than just avoid disaster. We consider a lot of things: development trajectories, budget processes, political infighting, all of which are unsustainable,” he concluded.
However, the Colombian House of Representatives noted that while experts should question the spending, they need to be ready to offer solutions.
“There are good reasons for where we are now,” he said. “It’s good to have a broad conversation around setting a fiscal balance, but we need to be very specific about what it is. [we] Recommend which taxes to cut or raise.
Penn Wharton’s Budget Model and others offer some options.
In late April, it laid out options in a financial “bundle” — from raising corporate taxes to broad reforms to Social Security and Medicare to exploring new sources of tax revenue.
Fortunately, the BPC says there is already good work going on behind the scenes to start addressing these issues.
Lawtz added that politicians are motivated to get the job done: “Most policymakers on both sides of the aisle acknowledge that this is unsustainable. Maybe it’s a crisis in financial markets: maybe a year, Maybe five years, maybe 50 years – it’s impossible to predict, but almost every economist, policymaker and analyst will tell you we can’t continue on this path.
