CBO Projection: US Debt Ceiling Must be Raised to Avoid Debt Exhaustion by Sept.
The Congressional Budget Office (CBO) warned on February 15 that the United States will run out of funds to pay all its bills sometime between July and September unless Congress increases the nation’s $31.4 trillion debt ceiling.
The CBO’s projection for the 2023 budget deficit is $1.4 trillion, about $400 billion more than it was last May, and is expected to swell to $2.7 trillion in 2033. This would be the highest level ever recorded since the 1940s and would exceed the 10-year ahead shortfall-to-GDP estimate.
Meanwhile, annual net interest expenses are expected to rise from $640 billion in 2023 to $1.429 trillion in 2033. The report also states that 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.
House Republicans are insisting on spending cuts to accompany any debt limit increase, with a goal of balancing the budget. However, Democrats don’t want to cut spending, and both sides have pledged not to cut any Medicare or Social Security benefits.
According to the CBO report, if Congress does not raise the debt limit, the “extraordinary measures” the Treasury is taking to pay America’s bills will run out between July and September. If revenue comes up short – for example, if capital gains realizations in 2022 were smaller or if U.S. income growth slowed by more in early calendar year 2023 than CBO projected – the extraordinary measures could be exhausted sooner, and the Treasury could run out of funds before July.
The CBO also issued economic projections, saying that the unemployment rate will rise through early 2024, reflecting the slowdown in economic growth. The projection further states that inflation will decrease until 2027 when it will reach the Federal Reserve's long-run target.
In an effort to prevent surpassing the $31.4 trillion statutory borrowing cap, Secretary of the Treasury Janet L. Yellen implemented “extraordinary measures” last month, which included suspending investments in particular federal trust funds. The extraordinary measures taken by the agency, which were initiated due to a “debt issuance suspension period,” will be concluded on June 5.
It is anticipated that inflation will decrease this year and remain low until 2027.
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