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When will the debt limit be breached?


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The United States is expected to hit its technical debt limit on Thursday. At that point, the Treasury Department will begin using “extraordinary measures” to continue paying the government’s obligations. Those are essentially fiscal accounting tools that curb certain government investments so that the bills continue to be paid.

Those options could be exhausted by June, Ms. Yellen told Congress last week. The Bipartisan Policy Center, which closely tracks the debt limit deadline, estimates that the Treasury will really run out of cash — what’s known as the X-date — sometime around the middle of the year.

How much debt does the United States have?

The national debt crossed $31 trillion for the first time last year. The borrowing cap is set at $31.381 trillion.

What happens if the debt limit is not lifted or suspended?

Once the government exhausts its extraordinary measures and runs out of cash, it would be unable to issue new debt. That means it would not have enough money to pay its bills, including interest and other payments it owes to bondholders, military salaries and benefits to retirees.

No one knows exactly what would happen if the United States gets to this point but the government could wind up defaulting on its debt if it is unable to make required payments to its bondholders. Economists and Wall Street analysts warn that such a scenario would be economically devastating and could plunge the globe into a financial crisis.

Can the government do anything to forestall disaster?

The next bull market in stocks won't kick off until the Fed is forced to bail out the US government, Bank of America says

"The US government currently has a debt pile of $31 trillion, and that's expected to soar by more than $20 trillion over the next 10 years. That's $5.2 billion every single day, or $218 million every single hour, Bank of America's Michael Hartnett said in a Friday note.

While the trillions of dollars of fiscal stimulus in the wake of the COVID-19 pandemic were successful in averting a recession over the past three years, that spending produced short-term gains that will eventually lead to long-term pain.

That's because the US government's rising debt pile and growing fiscal deficits will result in higher and higher interest payments as the Fed hikes rates, which influence the yields that must be paid on Treasury bonds.

For nearly two decades up until 2018, a combination of relatively small federal deficits and low interest rates meant that the US government was paying less than 1.5% of its GDP on payments tied to its debt. That figure has since jumped to 1.9%, and BofA hints that it will continue to rise.

"US Federal deficit up to 6.1% of GDP due to fiscal infrastructure spend; at peak of 2000 expansion, US ran fiscal surplus, peak of 2007 expansion deficit was 1% of GDP, peak of last expansion deficit was 2.5% of GDP," Hartnett said.

This represents a clear deterioration in trends that is going to be exacerbated by the eventual surge in debt-servicing payments, and that's where the Fed comes in.