Delayed Debt Ceiling Negotiations Increase The Likelihood of Structural Ramifications
Debt ceiling impasse has moved into troubling territory. On January 19, the United States reached the national debt ceiling of $31.38 trillion. At that point, the Treasury Department was no longer allowed to borrow money to finance previously-made spending decisions. Instead, the Treasury began pulling from a reserve of federal funds originally allocated for other expenses, in order to maintain government operations and service the nation’s outstanding debt. Paying interest to the various holders of U.S. debt is critical to maintaining the nation’s status as a reliable borrower and allowing the country to continue to access capital in the future. U.S. debt is also a benchmark for many financial instruments, and a default would likely send major shocks through capital markets. However, the Treasury’s reserves are quickly dwindling and may expire as soon as early June. At that point, the Treasury will not be able to fully fund the government, as federal expenses exceed incoming revenues. Congress and the president are negotiating a deal, but as the impasse moves up against that early June date, consequences are possible.