The United States reached its current debt ceiling on January 19, 2023, prompting the Treasury Department to undertake “extraordinary measures” so the government could continue to pay its bills. When these measures run out, or reach the “X date,” likely in late summer of 2023, Congress will have to either raise the debt ceiling or face the disastrous economic consequences of a possible default.
If Congress fails to raise the debt limit in time and the United States defaults on its debt obligations, the loss of trust in the federal government in global financial markets would raise borrowing costs and unleash a ripple effect on the US economy. Higher interest rates on federal debt would immediately reduce the US government’s capacity to spend on the military, Social Security, Medicare, and running federal agencies. US workers, investors, borrowers, and recipients of federal assistance could all face lasting costs.
Some in Congress want concessions from the Democratic-controlled Senate and White House to reduce federal spending before they will vote to raise the debt ceiling. This brinkmanship has occasionally secured spending adjustments in the past, but tying budgetary negotiations to the threat of default risks the economic security of millions of Americans as the chart shows. Congress should not be so quick to play with fire.
This PIIE Chart is adapted from Lucas Rengifo-Keller’s blog, Breaching the debt ceiling is not the same as a government shutdown. Its consequences could be dire.