CBO Report Warns of Potential US Default as Debt Skyrockets
The Congressional Budget Office (CBO) released a report on Wednesday warning that the U.S. government could default on its debt as early as July if Congress is unable to raise the debt limit.[0] The CBO projected that the government’s ability to borrow using extraordinary measures will be exhausted between July and September 2023 if the debt limit remains unchanged.[1]
According to the Congressional Budget Office's (CBO) prediction, the deficit for the 2023 budget is estimated to be $1.4 trillion, an increase of roughly $400 billion compared to May[2] It is estimated that the deficit will reach $2.7 trillion in 2033.[0] The agency pointed out that this figure is “significantly larger” than the 3.6% of GDP that deficits have averaged over the past fifty years.[0]
Meanwhile, federal debt held by the public is expected to balloon from 98% of GDP this year to 118% in 2033—which would be the highest level ever recorded—as interest costs and mandatory spending outpace the growth of revenues and the economy.[3] By 2053, the GDP is projected to reach 195%.[0]
The U.S. government hit the statutory limit for outstanding debt, $31.4 trillion, on Jan. 19.[4] Analysts from Wall Street have calculated that the Treasury can use approximately $500 billion of exceptional accounting procedures to remain beneath the limit.[5]
The Congressional Budget Office's report serves as a stern reminder to lawmakers that urgent action needs to be taken to prevent a disastrous default.[0] As of yet, House Republicans and President Joe Biden have not made substantial headway in resolving their disagreements concerning the budget cap.[0]
The Congressional Budget Office (CBO) forecasts that, due to the Federal Reserve's increase in interest rates, economic growth in real terms will “comes to a halt” in 2023.[0] It is anticipated that inflation will decrease in the current year, with the unemployment rate increasing until early 2024 due to the deceleration of economic growth.[0] According to the CBO, there will be a significant rise in expenditure on interest payments.[6]
Phillip Swagel, the CBO’s director, said in a statement that “over the long term, our projections suggest that changes in fiscal policy must be made to address the rising costs of interest and mitigate other adverse consequences of high and rising debt.”[7]
As the federal debt of $31.4 trillion is being contended over by Republican leaders and the White House, conservatives are urging for spending reductions to reduce the nation's increasing credit card balance.[3]
0. “US could default on debt between July and September if Congress doesn’t act, CBO projects” Boston News, Weather, Sports | WHDH 7News, 15 Feb. 2023, https://whdh.com/news/us-could-default-on-debt-between-july-and-september-if-congress-doesnt-act-cbo-projects/
1. “Federal Debt and the Statutory Limit, February 2023” Congressional Budget Office, 15 Feb. 2023, https://www.cbo.gov/publication/58906
2. “CBO warns of potential for U.S. default between July and September, as debt-limit standoff persists” MarketWatch, 15 Feb. 2023, https://www.marketwatch.com/story/cbo-warns-of-potential-for-u-s-default-between-july-and-september-as-debt-limit-standoff-persists-1634907f
3. “Deficit set to hit $1.4 T this year amid persistent inflation, federal experts say” POLITICO, 15 Feb. 2023, https://www.politico.com/news/2023/02/15/inflation-persist-until-2026-federal-experts-00083033
4. “Debt ceiling: CBO finds government could be at risk of default ‘between July and September'” Yahoo Money, 15 Feb. 2023, https://money.yahoo.com/debt-ceiling-cbo-finds-government-could-be-at-risk-of-default-between-july-and-september-193301099.html
5. “Treasury Risks July Payment Default If Lawmakers Fail to Raise Debt Limit, CBO Says” Yahoo Finance, 15 Feb. 2023, https://finance.yahoo.com/news/treasury-risks-july-payment-default-190000211.html
6. “US could default on debt between July and September if Congress doesn't act, CBO projects” CNN, 15 Feb. 2023, https://www.cnn.com/2023/02/15/politics/debt-ceiling-default-cbo-congress/index.html
7. “How the US's new debt limit timeline will put Social Security payments and loans at risk” USA TODAY, 15 Feb. 2023, https://www.usatoday.com/story/news/politics/2023/02/15/cbo-debt-ceiling-social-security-payments/11251749002/
