US may default before Christmas if debt ceiling isn’t raised: analysis

Treasury Secretary Janet Yellen is seen during a Senate Banking, Housing, and Urban Affairs Committee hearing to discuss oversight of the CARES Act within the Federal Reserve and Department of Treasury on Tuesday, September 28, 2021.
Greg Nash

The federal government has a 50-50 chance of defaulting on the national debt if lawmakers don’t raise or suspend the borrowing limit before they leave the Capitol for Christmas, according to projections released Wednesday.

The Bipartisan Policy Center (BPC), a nonpartisan think tank, said the Treasury Department will likely exhaust its ability to keep the U.S. solvent sometime between the middle of December and the beginning of February. While the range begins slightly later than the group projected in October, BPC director of economic policy Shai Akabas warned that the so-called X Date is more likely than usual to land in the first half of that range.

“At this point, it’s roughly a coin toss whether the X Date hits before Congress returns from its December holiday recess,” Akabas said in a statement. “Based on the data we have right now, failing to act before then would be a high-stakes gamble.”

BPC’s new projection comes two days after Treasury Secretary Janet Yellen told lawmakers that the U.S. would likely run out of ways to pay the country’s bills on time at any point after Dec. 15.

The Treasury is obligated under the bipartisan infrastructure bill signed by President Biden on Monday to transfer $118 billion to the Highway Trust Fund no later than Dec. 15. That cash, once transferred, would no longer be available to cover spending already approved by Congresses and presidents over several decades. 

“With enactment of the bipartisan infrastructure package and Treasury’s announcement, we now know that the transfer will expedite the X Date’s arrival,” Akabas said. “The clock has always been ticking, but it just jumped ahead an hour.”

The U.S. has never defaulted on the national debt and doing so would likely cause chaos across global financial markets. The U.S. government would be unable to fund millions of essential benefits payments and federal programs as the country slips into a recession with no fiscal capacity to staunch the bleeding.

Even so, Republicans have vowed to block any Democratic attempt to raise the federal debt limit despite doing so three times under former President Trump with bipartisan support. While GOP lawmakers have tied their refusal to Democratic spending plans, raising the debt ceiling is essential to paying off decades of previous expenses and has no direct impact on future spending levels.

Republican senators have insisted that Democrats must raise the debt limit through budget reconciliation: a process that would only require simple majorities in both chambers of Congress, but force Democrats to denominate a specific debt ceiling and expose senators to a lengthy amendment process.

While Senate Democrats resisted reconciliation as the X Date neared in October, there are early discussions between Senate Majority Leader Charles Schumer (D-N.Y.) and Minority Leader Mitch McConnell (R-Ky.) toward some type of agreement to ease the process.

“There are discussions … that are at least initially underway on that. We’ll see where it lands,” said Sen. John Thune (R-S.D.), McConnell’s No. 2.

“I’m hoping there will be some progress there.”

Neither Schumer nor McConnell shed light on their plans for the looming debt cliff during Tuesday press conferences.

“We must pass the debt limit. We cannot let the full faith and credit of this country lapse, and we hope to do it in a bipartisan way,” Schumer told reporters on Tuesday.

Asked about Democratic colleagues’ demands that Republicans help advance debt limit legislation, McConnell told reporters, “We’ll figure out how to avoid default. We always do.”

Tags Chuck Schumer Donald Trump Janet Yellen Joe Biden John Thune Mitch McConnell

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