The debt limit (the statutory limit on the amount the federal government can borrow) is currently suspended until January 2. That means unless Congress acts to raise the borrowing limit or further suspend the statutory cap on borrowing by January 2, the U.S. risks being unable to make timely payments on all of its obligations. Economists widely believe this would trigger worldwide economic catastrophe.
Consequently, the lame duck 118th Congress will be forced to address this issue, and it is hotly controversial. Few lawmakers find the idea of even a partial breach of the U.S.’s “full faith and credit” acceptable, but many view the prospect as a significant bargaining point. So far, the issue is flying well below the Congressional radar, and thus it is unlikely to be addressed prior to Congress recessing (probably in early October) for the November elections. But it will be a huge issue—maybe even surpassing the need to fund the government to avoid a shutdown—in November and December.
Prospects: Lawmakers in general—both parties, both chambers—fear breach (even “only” partial breach) of the debt limit. Thus, it is more likely than not that Congress will find a way to address the issue. Whether that happens prior to January 2 could depend on whether the Treasury Department can use “extraordinary measures” to stave off any default—and that possibility is still a bit unclear. If extraordinary measures are available, the debt limit “drop dead date” could be delayed for up to two or three months.
The issue could bring a white-knuckle environment to Capitol Hill in November-December if Treasury determines that extraordinary measures are either unavailable or of shorter-than-usual duration. It would likely impact the effort to enact a short-term continuing resolution which in turn could adversely impact government funding. Right now, the debt limit is a bit of a “sleeper issue,” but it is one that when it awakens could have the force of a hurricane on Capitol Hill (and the markets).
NAIFA Staff Contacts: Diane Boyle – Senior Vice President – Government Relations, at dboyle@naifa.org; or Jayne Fitzgerald – Director – Government Relations, at jfitzgerald@naifa.org; or Micheal Hedge – Senior Director – Government Relations, at mhedge@naifa.org.