US risks defaulting on payment obligations

The United States risks defaulting on payment obligations as soon as July if lawmakers fail to raise the federal borrowing limit, the Congressional Budget Office says.

The forecast on Wednesday by the nonpartisan office serving Congress comes as Republicans threaten to block the usually rubber-stamp approval for raising the nation's credit limit, if Democrats do not first agree to steep future budget cuts.

The debt limit, or debt ceiling, is the maximum amount of debt that the US Treasury Department can issue to the public or to other federal agencies.

"If the debt limit remains unchanged, the government's ability to borrow using extraordinary measures will be exhausted between July and September 2023," Phillip Swagel, the office's director, said.

In January the US reached its $31.4 trillion borrowing cap, prompting the Treasury to start measures allowing it to continue financing government activities.

Earlier the Treasury had said its cash and "extraordinary measures "were likely to last until early June.

The Congressional Budget Office said it estimated that under its "baseline budget projections" the Treasury would exhaust those measures and run out of cash some time between July and September. The Deficit Control Act requires the office to project spending, it said.

"The fiscal trajectory is unsustainable," Swagel said on Wednesday after the office issued its long-term projections. "Our spending is outpacing our revenue. At some point something has to give."

The office also projects that the deficit will total $18.8 trillion over the next 10 years, 20 percent more than the estimate in May of $15.7 trillion.

Debt held by the public is projected to rise in relation to the size of the economy each year, reaching 118 percent of GDP by 2033, which would be the highest level ever recorded, the Congressional Budget Office said in its 10-year budget and economic outlook report.

President Joe Biden said on Wednesday that he would not let Republicans hold the nation "hostage".

"I will not negotiate whether or not we pay our debt," Biden said in remarks to the International Brotherhood of Electrical Workers in Lanham, Maryland. "I will not allow this nation to default."

Significant reductions

On Tuesday the Democratic Senate Majority Leader Chuck Schumer said: "We're continuing to speak to how bad it would be to allow the nation to default. … It's going to affect every American family badly."

At the start of the month the Republican Speaker of the House of Representatives Kevin McCarthy said talks with Biden on the debt ceiling had gone well.

However, a deal remains elusive.

It is hard for either the Democrats or the Republicans to say where they can find significant reductions unless they go into areas such as social security, Medicare, Medicaid or other government-subsidized healthcare, usually regarded as politically untouchable.

Maya MacGuineas, president of the Committee for a Responsible Federal Budget, said lawmakers should be open-minded and consider changes across the board to reduce deficits.

"Everything should be on the table to get our unsustainable fiscal problems under control."

The $31.4 trillion debt is "the product of policy choices and economic shocks", The New York Times said.

"Tax cuts signed into law by presidents George W. Bush, Barack Obama and Donald J. Trump reduced government revenues. Wars in Iraq and Afghanistan started under Mr Bush were not offset by tax increases. Mr Obama, Mr Trump and Mr Biden signed trillions of dollars of emergency spending to combat the 2008 financial crisis and the 2020 pandemic recession."

In January Newsweek quoted Charles Abraham, US financial services practice leader at Mazars, an audit, tax and advisory firm, as saying: "A default would lead to a significant deterioration in the faith and credit of the United States of America and could spark a global recession."

In an opinion piece for Xinhua News Agency on Jan 29, Song Guoyou, deputy director and professor of the Center for American Studies at Fudan University in Shanghai, said: "Suppose the US fails to reach an agreement on its debt ceiling in the short term. In that case it would cause increased volatility in the international financial markets and inevitably impact the stability of the world economy.

"Other countries would be forced to suffer the consequences of America's persistent political ailment."

Agencies contributed to this story.