U.S. Could Default On National Debt

Full article by Sylvan Lane found here.

Key Points:

• The federal government is on course to default on the national debt somewhere between the middle of October and middle November if there is no action to raise the debt ceiling.

• The debt ceiling is a legal limit on how much debt the federal government can take on while it pays bills already approved by the president and Congress. Raising, suspending, or reimposing debt ceilings do not change the level of national debt or control future spending, but gives the Treasury more room to borrow and pay off previous debt.

• The Bipartisan Policy Center (BPC) says the Treasury Department will run out of ways to keep the U.S solvent after the start of the fiscal year. It has stated that a potential economic slowdown and uncertainty caused by rising COVID-19 cases could accelerate the process: “It’s unclear what the next month or two is going to bring in federal revenue, and that can make a difference in terms of timing”.

• A two-year suspension of the debt ceiling expired on August 1st, and the Treasury Department has used a range of measures to prevent the U.S. from surpassing the debt ceiling.

• Deep partisan stalemates and alarming uncertainty about the economy have hindered progress towards a resolution.

• The implications for a default on debt by the U.S. could have disastrous ramifications. A potential breach of credit and confidence in the U.S. could have a severe effect on the U.S dollar and the trillions of dollars in Treasury securities that are a part of the global financial system.