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US could default on national debt with ‘X Date’ looming, think tank warns

US could default on national debt with ‘X Date’ looming, think tank warns
The US federal government is likely to run out of borrowing room and breach the debt limit after October 1, according to the Bipartisan Policy Center (BPC).

“Treasury's updated guidance means that the ‘X Date’ will likely arrive after the start of fiscal year 2022,” said Shai Akabas, director of economic policy at BPC, a Washington, DC-based think tank. Akabas was referring to the date when the federal government will no longer be able to pay its bills in full and on time.

“That would realistically allow Congress to address the debt limit as part of an appropriations package and potentially pair that move with a longer-term reform of the statute to eliminate financial risk from these recurring episodes,” he said.

Akabas also cautioned that the unique fiscal environment of a pandemic adds unprecedented uncertainty to any debt limit forecast.

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“While uncertainty is perhaps greater than ever before, the way to minimize short-term financial risk remains the same: acting on the debt limit soon,” he said.

The forecast comes as the US Treasury Department warned on Wednesday that its fiscal tools to keep the national debt from breaching its congressionally mandated limit may fail to last as long as in prior years.

It said that “In light of the substantial Covid-related uncertainty about receipts and outlays in the coming months, it is very difficult to predict how long extraordinary measures might last,” adding that extraordinary measures could be exhausted much more quickly than in prior debt limit episodes.

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As part of a two-year budget deal passed by Congress in August 2019, the federal debt limit was suspended through July 31, 2021. In case lawmakers can't reach another agreement before then, the ceiling would automatically be reinstated on August 1 and the US Treasury wouldn't be able to raise additional cash from the sale of government securities.

The US national debt subject to the limit currently stands at a record $28.1 trillion, with that amount covering debt the government owes to itself in the form of commitments to Social Security and other government trust funds. The amount of the debt that is held by the public totals $22.1 trillion, which is slightly higher than 100% of the entire economy and stands at a height not seen since the huge borrowing the government did in the 1940s to fight in World War II.

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