Risks – and stakes – elevated as debt limit deadline nears (2023)

Conversations around the U.S. debt ceiling are likely to pivot to a short-term debt limit increase that will lessen market fears, note Washington Policy Analysts Ed Mills and Alex Anderson.

The latest projections from Treasury and the Congressional Budget Office (CBO) put the debt ceiling “X-Date” as soon as June 1 – earlier than the markets and D.C. expected. This significantly raises the stakes on the negotiations over the course of this month, with President Joe Biden proposing a May 9 meeting between him and House and Senate leaders (the next day Congress is in session).

The new deadline not only leaves even less room for error but also increases the potential for a short-term extension to remove the risk of default while providing time for further budget negotiations. Among the key players in this debate, we are most focused on Senate Republican Leader Mitch McConnell (R-KY), who has been a key player in previous negotiations. Overall, we view the earlier “X Date” as increasing the risk to equity markets in the near term but continue to believe a deal will be struck to avoid default.

Early June “X-Date” increases drama around debt limit. The latest projections from Treasury Secretary Janet Yellen pointing to the U.S. government being unable to satisfy payments on obligations as early as June 1 or “a number of weeks later than these estimates” will increase market concern over the ability of Congress to reach a deal on a shorter than anticipated timetable. An additional analysis released by the CBO will add credibility to Yellen’s projections with the latest CBO estimates also seeing a higher risk of an exhaustion of extraordinary measures in early June due to lower-than-anticipated tax receipts in April. Alternatively, any perception that Yellen’s projections are unrealistic and are meant to serve as political leverage could poison the well during the negotiation process. Regardless, we expect Congress to now approach this issue with more urgency, with credible projections pointing to the June-July period for necessary action to avoid default.

Conversations are likely to pivot to a short-term debt limit increase that will lessen market fears. While the initial market reaction may be negative around the June projections, we expect Congress will need a longer runway, which raises the odds of a short-term debt limit extension. A pivot in this direction has recent precedent but can be viewed as more of an uphill battle with greater resistance to “clean” increases in the House. Congress temporarily extended the debt limit for two months in October 2021 as a short-term measure before extending it on a longer-term basis in December 2021. Reports indicated Republican lawmakers have considered an extension of the debt limit until September 30 over the course of this year. An extension through the fall would coincide with the FY24 government funding deadline and provides a clear catalyst to wrap-up negotiations.

Eyes on the Senate and Mitch McConnell’s demands. With negotiations not set to start until at least May 9 and an “X Date” as early as June 1, a discussion of arcane Senate procedures and timing will quickly come into focus. Generally speaking, there is likely only time for the Senate to pass a bill once, making negotiations in the Senate increasingly important. Separately, any short-term extension would likely be developed in the Senate under a deal brokered between Majority Leader Chuck Schumer and Minority Leader McConnell. Senate Republicans may once again propose a temporary filibuster rule exemption for the debt limit that allows Democrats to move an increase on a party-line vote. However, this would be tied to conditions with the 2024 race in mind that put Democratic senators from swing states in a tough political position. These policy concessions could include market-relevant provisions such as Inflation Reduction Act (IRA) repeals or guardrails. McConnell has a stronger hand in this round of negotiations as a bill voted out of the Senate would need to be approved by a House Republican majority. Notably, Senator Joe Manchin is signaling he will push for some IRA repeals as part of the debt limit process. At this stage, we view this as political messaging, given the recent announcement of West Virginia Governor Jim Justice’s candidacy against Manchin in the 2024 Senate race. However, Manchin has a demonstratedhistory of effectively using leverage in key legislative negotiations. ESG: The most likely target would be guardrails that limit the expansion of tax credits for EVs through economic arrangements that are not pure Free Trade Agreements (FTAs), which has been a key point of frustration for Manchin as seeks flexibility to extend applicability to the EU and Asian allies. We will be watching to see if any other policy provisions could be attached with market impact related to IRA implementation and the ultimate direction of fiscal reforms as the process comes together.

Where are we in the debt limit process? D.C. has been in the “political theater” stage of the debt limit negotiations, which is a factor that can temporarily raise market concerns. With an “X-Date” now less than a month away, we are entering into the full negotiations phase. Both Republicans and Democrats are using the issue for political messaging purposes following the passage of the House debt limit bill – an opening for negotiations with the White House and Congressional Democrats. Currently, there is a divide among Democrats on the best strategy between direct negotiations and holding to their “clean” debt limit raise stance (a position that Democrats stuck to in 2021). However, that “clean” debt limit bill moved under unique rules which suspended the filibuster – a set of events that is unlikely to be repeated given Republican control of the House. As such, we see negotiations on some fiscal reforms as the most likely (and probably necessary) path forward.


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What happens when you raise the debt ceiling? ›

Potential repercussions of reaching the ceiling include a downgrade by credit rating agencies, increased borrowing costs for businesses and homeowners alike, and a dropoff in consumer confidence that could shock the U.S. financial market and tip the economy into recession.

What happens if the US defaults on the debt ceiling? ›

Defaulting would “produce an economic and financial catastrophe,” Yellen said in a statement, remarking that the government would not be able to make Social Security payments or invest in future projects. “Congress must vote to raise or suspend the debt limit. It should do so without conditions.

What happens if the US defaults on its debt 2023? ›

It would be an unfettered economic catastrophe. Our model indicates that unemployment would surge above 12% in the first six months, the economy would contract by more than 10%, triggering a deep and lasting recession, and inflation would soar toward 11% over the next year.

How many times has the US debt ceiling been raised? ›

Until recently, it was routine for Congress to raise the debt ceiling. Since 1960, Congress has intervened 78 times to change it in some way.

Why do they want to raise the debt ceiling? ›

Failure to increase the limit would have catastrophic consequences for the U.S. and global economies, as well as for all Americans, who rely on the public services supported through the federal budget—from Social Security and Medicare to food safety inspection, air traffic control, school nutrition, and environmental ...

What happens if we don't extend the debt ceiling? ›

If the debt ceiling binds, and the U.S. Treasury does not have the ability to pay its obligations, the negative economic effects would quickly mount and risk triggering a deep recession. The economic effects of such an unprecedented event would surely be negative.

When was the last time the debt ceiling was raised in the US? ›

The 2013 crisis was temporarily resolved on February 4, 2013, when President Barack Obama signed the No Budget, No Pay Act of 2013 which suspended the debt ceiling until May 19, 2013. On May 19, the debt ceiling was raised to approximately $16.699 trillion to accommodate the borrowing done during the suspension period.

When was the last US debt ceiling crisis? ›

The last time the U.S. government went to the brink of defaulting on its debt — in 2011 — the stock market tumbled and there was something close to a panic across the economy before Washington came to its senses and cut a deal.

Is the US at risk of defaulting on debt? ›

As of now, the U.S. has not defaulted on its debt. However, a debt ceiling increase agreement has yet to be reached. While this isn't necessarily indicative of default, it may be wise to pay particular attention to your emergency savings at this time of economic uncertainty and shifting market volatility.

Has the US ever not been in debt? ›

As a result, the U.S. actually did become debt free, for the first and only time, at the beginning of 1835 and stayed that way until 1837. It remains the only time that a major country was without debt. Jackson and his followers believed that freedom from debt was the linchpin in establishing a free republic.

Can the US ever get out of debt? ›

In modern history, the U.S. has never defaulted on its debt. The debt ceiling is the self-imposed limit on how much debt Congress allows the federal government to have. If Congress does not raise or suspend the debt ceiling, the U.S. could default on its debt, which would also impact financial markets and the economy.

Does debt go away after 7 years in USA? ›

A debt doesn't generally expire or disappear until its paid, but in many states, there may be a time limit on how long creditors or debt collectors can use legal action to collect a debt.

Who owns the most U.S. debt? ›

The Federal Reserve, which purchases and sells Treasury securities as a means to influence federal interest rates and the nation's money supply, is the largest holder of such debt.

What is the highest debt in US history? ›

Total US federal government debt breached $30 trillion mark for the first time in history in February 2022. As of February 2023, total federal debt was $31.5 trillion; $24.6 trillion held by the public and $6.9 trillion in intragovernmental debt.

What is the highest the US has ever been in debt? ›

These have corresponded with periods when the federal government ran large budget deficits: the Reagan-Bush years of the 1980s and early 1990s; the 2008 financial crisis and subsequent Great Recession; and the pandemic-caused recession of 2020, when federal debt spiked to an all-time high of 134.8% of GDP.

Is Social Security affected by debt ceiling? ›

Among the ramifications of a debt ceiling standoff, any payment issued by the federal government — like Social Security, Medicare, tax refunds, military paychecks and ample others — may be delayed.

What would happen if the US defaulted on its debt to China? ›

In a default, interest rates on U.S. treasuries would skyrocket (because investors would demand a higher rate in exchange for taking the risk that they might not be paid back), and treasuries might no longer be usable as collateral (because their underlying value would not be clear).

Which countries hold US debt? ›

As of January 2023, the five countries owning the most US debt are Japan ($1.1 trillion), China ($859 billion), the United Kingdom ($668 billion), Belgium ($331 billion), and Luxembourg ($318 billion).

How long does Congress have to raise the debt ceiling? ›

The federal debt ceiling was raised in December of 2021 by $2.5 trillion to $31.381 trillion, which lasted until January 19, 2023, according to a letter from Treasury Secretary Janet Yellen to Congressional leaders.

Is the debt ceiling constitutional? ›

There are very strong legal arguments that the debt ceiling does, indeed, violate the 14th Amendment. But these arguments have never been tested. No court has ever ruled on whether the debt ceiling is unconstitutional.

What is the main cause of the rising debt in America over the last 30 years? ›

For every year the federal government runs a deficit, the national debt grows as a result of the increasing amount of money borrowed. The US has run a budget deficit over the last 20 years, substantially growing the national debt.

When was the US in the least amount of debt? ›

However, President Andrew Jackson shrank that debt to zero in 1835. It was the only time in U.S. history when the country was free of debt.

When was the US debt the lowest? ›

On January 8, 1835, president Andrew Jackson paid off the entire national debt, the only time in U.S. history that has been accomplished.

Why did the US have so much debt in 1789? ›

Paying for the American Revolutionary War (1775 - 1783) was the start of the country's debt. Some of the founding fathers formed a group and borrowed money from France and the Netherlands to pay for the war.

Where do I put my money if US defaults? ›

“Prime” money-market funds can invest in government debt and securities, but also low-risk commercial holdings. Municipal money-market funds — debt securities issued by local or state governments — are yet another option.

What country has no debt? ›

The 20 countries with the lowest national debt in 2022 in relation to gross domestic product (GDP)
CharacteristicNational debt in relation to GDP
Macao SAR0%
Brunei Darussalam2.06%
Hong Kong SAR4.26%
9 more rows
4 days ago

How much of the US population is debt free? ›

Fewer than one quarter of American households live debt-free. Learning ways to tackle debt can help you get a handle on your finances.

How long would it take to pay off the US national debt? ›

To pay back one million dollars, at a rate of one dollar per second, would take you 11.5 days. To pay back one billion dollars, at a rate of one dollar per second, would take you 32 years. To pay back one trillion dollars, at a rate of one dollar per second, would take you 31,688 years.

How much does China owe US? ›

China's outstanding foreign debt, including US dollar debt, reached US$2.29 trillion at the end of September in 2020, up from US$2.13 trillion at the end of June, according to China's State Administration of Foreign Exchange.

What happens if the US Cannot pay its debt? ›

But if the United States defaults on the debt itself it would amount to an economic earthquake, with interest rates jumping and stocks plunging. "Investors would forever demand a higher interest rate to compensate for the risk that lawmakers do this to them again," said Zandi.

Can you live in America without debt? ›

It might appear impossible, but many consumers succeed in living their entire lives without any debt. People of a variety of ages and income levels have made this choice. It's not an easy feat, but if it's something you truly want, don't let naysayers talk you out of it.

What is the 11 word phrase to stop debt collectors? ›

If you are struggling with debt and debt collectors, Farmer & Morris Law, PLLC can help. As soon as you use the 11-word phrase “please cease and desist all calls and contact with me immediately” to stop the harassment, call us for a free consultation about what you can do to resolve your debt problems for good.

Can I be chased for debt after 10 years? ›

Debt collectors may not be able to sue you to collect on old (time-barred) debts, but they may still try to collect on those debts. In California, there is generally a four-year limit for filing a lawsuit to collect a debt based on a written agreement.

Can debt collectors chase you after 6 years? ›

There's no time limit for the creditor to enforce the order. If the court order was made more than 6 years ago, the creditor has to get court permission before they can use bailiffs.

Why is the U.S. in so much debt? ›

The federal government needs to borrow money to pay its bills when its ongoing spending activities and investments cannot be funded by federal revenues alone. Decreases in federal revenue are largely due to either a decrease in tax rates or individuals or corporations making less money.

Why does the U.S. owe so much money? ›

Key Takeaways. The U.S. debt is the total federal financial obligation owed to the public and intragovernmental departments. The U.S. national debt is so big because Congress continues both deficit spending and tax cuts.

Which country has highest debt? ›

Japan - Debt: 221.32% of GDP

Japan's debt-to-GDP ratio is the highest in the world due to a prolonged period of economic stagnation and demographic challenges.

How much debt does the average American have? ›

The average American holds a debt balance of $96,371, according to 2021 Experian data, the latest data available.

Who has the most debt in human history? ›

With many countries borrowing extensively to finance war expenses, advanced economy indebtedness rose to the highest level recorded in the database: almost 150 percent of GDP in 1946. Debt reached its lowest ratio ever—23 percent of GDP—in 1914, when World War I began.

Who does the U.S. borrow money from? ›

The federal government borrows money from the public by issuing securities—bills, notes, and bonds—through the Treasury. Treasury securities are attractive to investors because they are: Backed by the full faith and credit of the United States government. Offered in a wide range of maturities.

How much is too much debt in US? ›

One guideline to determine whether you have too much debt is the 28/36 rule. The 28/36 rule states that no more than 28% of a household's gross income should be spent on housing and no more than 36% on housing plus debt service, such as credit card payments.

Does the US owe China money? ›

How much money does the U.S. owe to China? China owns roughly $1.08 trillion worth of U.S. debt. 2 This amount is subject to market fluctuations. The value will change whenever China trades Treasury securities or when the prices of those bonds change.

Has the US paid off ww2 debt? ›

First, as discussed by authors such as Hall and Sargent (2011) and Eichengreen and Esteves (2022), the U.S. actually paid off part of the World War II debt by running primary surpluses—by levying taxes in excess of current government spending—over much of the period when the debt/GDP ratio was falling.

Who owns the most US debt? ›

The Federal Reserve, which purchases and sells Treasury securities as a means to influence federal interest rates and the nation's money supply, is the largest holder of such debt.

Who does the US owe debt to? ›

As of January 2023, the five countries owning the most US debt are Japan ($1.1 trillion), China ($859 billion), the United Kingdom ($668 billion), Belgium ($331 billion), and Luxembourg ($318 billion).

How much of the U.S. debt is owned by China? ›

Overall, foreign countries each make up a relatively small proportion of U.S. debt-holders. Although China's holdings have represented just under 20 percent of foreign-owned U.S. debt in the past several years, this percentage only comprises between 5 and 7 percent of total U.S. debt.

Why is the US in so much debt? ›

The federal government needs to borrow money to pay its bills when its ongoing spending activities and investments cannot be funded by federal revenues alone. Decreases in federal revenue are largely due to either a decrease in tax rates or individuals or corporations making less money.

What country does the US owe the most money to? ›

With $1.1 trillion in Treasury holdings, Japan is the largest foreign holder of U.S. debt. Japan surpassed China as the top holder in 2019 as China shed over $250 billion, or 30% of its holdings in four years.

Which country has the biggest debt in the world? ›

the United States

Who started the U.S. debt? ›

1783: Raising Taxes to Meet Operating Expenses

Alexander Hamilton rallied for the government to assume some debt and help meet its expenses. He pushed the framers of the new Constitution to establish measures to provide the assurance that the debt would be paid, and thus increase confidence in the growing government.

Are there any countries not in debt? ›

The best example can be taken from Hong Kong (it is a one of the debt free countries), whose economy has the least debt to GDP ratio. It is an almost debt free country. It has a well-regulated financial system and large foreign reserves.

Where does the US borrow money from? ›

The federal government borrows money from the public by issuing securities—bills, notes, and bonds—through the Treasury. Treasury securities are attractive to investors because they are: Backed by the full faith and credit of the United States government. Offered in a wide range of maturities.


1. Debt ceiling deadline: Stalemate in Washington
2. Dozens of GOP Senators oppose debt ceiling increase without spending cuts
(NBC News)
3. High-stakes debt ceiling talks continue at White House
4. Congress braces for fight on debt ceiling deadline | Morning in America
5. CPI Inflation, Debt Ceiling Deadline and the State of Small Business | Market Takes
(Dion Rabouin | WSJ)
6. The U.S. debt ceiling debacle


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