What’s Behind the Looming ‘X-Date’ on the US Debt Limit?

April 24, 2023by Josh Boak, Associated Press
What’s Behind the Looming ‘X-Date’ on the US Debt Limit?
Speaker of the House Kevin McCarthy, R-Calif., speaks at the Capitol in Washington, Thursday, April 20, 2023. (AP Photo/J. Scott Applewhite, File)

WASHINGTON (AP) — In January, the U.S. government ran up against its legal borrowing limit of $31.381 trillion, and the Treasury Department began implementing “extraordinary measures” to avoid missing payments on its bills.

That started speculation about the “x-date” — the date when those measures would be exhausted and the government might actually default if the limit on federal borrowing is not lifted. The x-date could be reached as early as June, depending on how much money the IRS collects in April from people filing their taxes.

HOW BIG A PROBLEM IS THIS?

It seems ominous, right?

This might be the time to be getting a bit worried as more than three months have passed with little progress. There is only so long these accounting workarounds can last before President Joe Biden and House Speaker Kevin McCarthy need to reach a deal to lift the debt cap. McCarthy is calling for trillions of dollars in spending cuts over the decade in return for an increase, while Biden insists that any talks about government finances should not occur with the threat of an economy-wrecking default hanging over lawmakers.

The Democratic president and Republican congressional leader have each tried to assure the public in recent weeks that they don’t want the government of the world’s largest economy to default. But Biden has resisted McCarthy’s calls for negotiations, while McCarthy is pushing a plan that can’t pass the Democratic-majority Senate.

These talks often grow heated and go down to the wire, with major economic damage in the balance. But there have been roughly 80 deals to raise or suspend the borrowing cap since the 1960s. What possibly makes this time different is the degree of political polarization, which could possibly lead to the U.S. government missing payments and triggering a global economic meltdown.

WHAT ARE ‘EXTRAORDINARY MEASURES’?

To keep the government open, the Treasury Department in January began a series of accounting maneuvers that would put a hold on contributions and investment redemptions for government workers’ retirement and health care funds, giving the government enough financial space to handle its day-to-day expenses until roughly June.

By suspending payments, the government can reduce the amount of outstanding debt, enabling the Treasury to keep financing government operations.

What happens if these “extraordinary measures” are exhausted without a debt limit deal is unknown. A prolonged default could be devastating, with crashing markets and panic-driven layoffs if confidence evaporated in a cornerstone of the global economy, the U.S. Treasury note.

HOW COMMON IS THIS?

“Treasury Secretaries in every Administration over recent decades have used these extraordinary measures when necessary,” Treasury Secretary Janet Yellen wrote in her initial letter about the measures.

The measures were first deployed in 1985 and have been used at least 16 times since then, according to the Committee for a Responsible Federal Budget, a fiscal watchdog.

WHY DO WE HAVE A DEBT LIMIT?

Before World War I, Congress needed to approve each bond issuance. The debt limit was created as a workaround to finance the war effort without needing a constant series of votes.

Since then, a tool created to make it easier for the government to function has become a source of dysfunction, stoking partisan warfare and creating economic risk as the debt has increased in size over the past 20 years.

HOW RISKY IS THE BRINKMANSHIP THIS TIME? It looks alarming — and it’s unclear how Biden, McCarthy and the Democratic Senate will find common ground. A default could cause millions of job losses, a deep recession that would reverberate globally and, ironically, higher interest rates that would make it harder to manage the federal debt.

Biden called the plan that McCarthy unveiled last week “wacko,” with a White House analysis showing that the spending caps would hurt schooling for children, health care for veterans, food aid for families and seniors and cause housing costs to climb for the country’s poorest households. The president’s budget plan announced in March would reduced deficits by nearly $3 trillion over the next 10 years, primarily through tax increases on the wealth and corporations.

“America is not a deadbeat nation,” Biden said. “Take default off the table.”

On Fox News, McCarthy defended his plan in a Sunday interview by noting that even Sen. Joe Manchin, D-W.V., backed a 1% spending cap on discretionary spending. McCarthy said Biden was putting the country at risk of defaulting by refusing to hold talks.

“The idea that he won’t even negotiate for more than 80 days, he is now putting the country in default,” McCarthy said. “We are the only ones being responsible and sensible about this.”

A+
a-
  • debt limit
  • In The News

    Health

    Voting

    Economy

    May 21, 2024
    by Dan McCue
    With Memorial Day Approaching, White House Moves to Keep Gas Prices Low

    WASHINGTON — With Memorial Day weekend fast approaching and the summer driving season just around the corner, the Biden administration... Read More

    WASHINGTON — With Memorial Day weekend fast approaching and the summer driving season just around the corner, the Biden administration announced it will sell 1 million barrels of gasoline from federal reserves to lower prices at the pump for all Americans. Energy Secretary Jennifer Granholm said... Read More

    April 12, 2024
    by Kate Michael
    IMF Director Sets the Stage for IMF-World Bank Spring Meetings 

    WASHINGTON — As the world's finance ministers and central bank governors prepare to convene in Washington, D.C., for the IMF-World... Read More

    WASHINGTON — As the world's finance ministers and central bank governors prepare to convene in Washington, D.C., for the IMF-World Bank spring meetings next week, Kristalina Georgieva, managing director of the International Monetary Fund, spoke about how this event comes at a delicate moment for the... Read More

    April 8, 2024
    by Dan McCue
    Biden Administration Invests $6.6B to Bolster US Chip Manufacturing

    WASHINGTON — The Biden administration is awarding up to $6.6 billion in grants to the Taiwan Semiconductor Manufacturing Company, the... Read More

    WASHINGTON — The Biden administration is awarding up to $6.6 billion in grants to the Taiwan Semiconductor Manufacturing Company, the largest maker of the most advanced microchips in the world, to help support construction of the company’s first major hub in the United States. The announcement... Read More

    Inflation Slowed Further in December as Economic 'Soft Landing' Moves Into Sharper Focus

    WASHINGTON (AP) — The Federal Reserve’s preferred inflation gauge cooled further last month even as the economy kept growing briskly, a... Read More

    WASHINGTON (AP) — The Federal Reserve’s preferred inflation gauge cooled further last month even as the economy kept growing briskly, a trend sure to be welcomed at the White House as President Joe Biden seeks re-election in a race that could pivot on his economic stewardship. Friday’s... Read More

    Americans' Economic Outlook Brightens as Inflation Slows and Wages Outpace Prices

    WASHINGTON (AP) — After an extended period of gloom, Americans are starting to feel better about inflation and the economy —... Read More

    WASHINGTON (AP) — After an extended period of gloom, Americans are starting to feel better about inflation and the economy — a trend that could sustain consumer spending, fuel economic growth and potentially affect President Joe Biden's political fortunes. A measure of consumer sentiment by the University of Michigan has... Read More

    Some Americans Will Get Their Student Loans Canceled in February as Biden Accelerates New Plan

    WASHINGTON (AP) — The Biden administration will start canceling student loans for some borrowers in February as part of a new... Read More

    WASHINGTON (AP) — The Biden administration will start canceling student loans for some borrowers in February as part of a new repayment plan that's taking effect nearly six months ahead of schedule. Loan forgiveness was originally set to begin in July under the new SAVE repayment plan, but... Read More

    News From The Well
    scroll top