What you need to know
- The U.S. government's borrowing limit was reimposed this week, putting the nation days away from going over the debt ceiling.
- One analysis suggests that the Treasury Department could use accounting techniques to ensure the government pays its bills up until the summer.
- After the end of the extraordinary measures, the lawmakers must pass or suspend a new debt ceiling, otherwise the government will not be able pay all the money it owes. This could cause a financial emergency.
Although a key deadline has passed for government borrowing limits, it is possible that lawmakers will not need to take action until summer.
The debt ceiling for the United States was restored to its previous level on Thursday. Congress had set a limit of how much the federal government could borrow. In 2023, the limit was suspended as part of a deal between Joe Biden, President Obama and Republican legislators. According to at least some analyses, the limit on borrowing is not likely to have any serious effect for many months.
A government that exceeds its borrowing limit may have severe economic implications. The government would be forced to choose between paying its debts and fulfilling other obligations with revenue if it was no longer allowed to borrow. The government would be forced to make a choice between sending Social Security checks or paying the interest on its national debt.
Those choices could potentially set off a global financial crisis and tank the economy. Recently, lawmakers used the breaching of the debt limit to negotiate with their opponents. They got concessions in return for not having the country over this financial cliff.
There is some wiggle room for the government
The debt ceiling has been reinstated, but it may be months before Congress is forced to take action to raise it.
The new ceiling was established by law at the level of national debt currently, which is around 36 trillion dollars. It is inevitable that the debt ceiling will be reached sooner rather than later, as the government’s deficit spending causes the debt to rise over time.
Treasury Secretary Janet Yellen, however, explained in a recent letter to Congress that a planned sale of securities by the federal government had given it a couple of days’ wiggle-room, predicting the ceiling was likely reached somewhere between January 14th and Jan.23th.
Summer is the real deadline
After that, the Treasury Department can use accounting tricks called "extraordinary measures" to keep the government paying its bills for a time. Bernard Yaros is the lead U.S. economics at Oxford Economics. He wrote this in a comment.
The decision to increase or suspend the limit would then be left to President Trump and Congress.
Even though Republicans control both the Senate & House of Representatives their majority is so thin that just a handful of dissidents could overturn any plans for extending the ceiling. Last month lawmakers rejected Trump’s proposal to extend debt ceiling for a period of two years.
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