Washington, D.C.– Signs of increased costs for the U.S. government are emerging as the debt limit “X Date” nears, when the Treasury Department will be unable to fully pay the nation’s bills on time. The Bipartisan Policy Center projects that “X Date” will be reached sometime in early to mid-October.
Recent data show that markets for Treasury securities are reacting negatively, with spiking interest rates on securities maturing near the time of the projected “X Date.”
In the past, debt limit impasses have significantly increased the federal government’s borrowing costs. Findings from a recent study by researchers at the Federal Reserve show that those costs increased by hundreds of millions of dollars when Treasury neared the “X Date” in 2011 and 2013. The recent response in Treasury markets indicate that the federal government is headed in a similar direction this year.
“Some of the costs of delay on debt limit action are already showing up in the form of increased interest rates being paid by Treasury,” Shai Akabas, BPC’s director for fiscal policy, said. “Those costs will continue to increase the closer we get to the ‘X Date.’”
Policymakers will have limited time when they return after Labor Day to address the debt limit prior to BPC’s “X Date” range. Based on BPC’s projections, the debt limit would need to be raised or suspended by the end of September to ensure the federal government does not default on obligations. If an unprecedented default were to occur, individuals and organizations owed money from the federal government would likely have their payments delayed. This would also lower the confidence of investors, with large potential ripple effects throughout the economy.
“The long-term effects of default could have serious consequences for the economy,” Akabas said. “Policymakers need to come back from the August recess with an understanding of the full implications of not addressing the debt limit in a timely manner.”
To inform these discussions, in the coming weeks BPC will be releasing an analysis of what specific payments could be missed or delayed if the federal government does not raise the debt limit before the “X Date.”
BPC today released a video of common myths and facts about the debt limit.