The United States Congressional Budget Office (CBO) has published a report warning of the risks of the US government defaulting on its debt in the near future. According to the report, the US government is at significant risk of no longer meeting its financial obligations as early as June 2021.
This risk is attributed to the statutory debt limit of $31.4tn, which was reached on January 19, 2021. The CBO predicts that if the debt limit remains unchanged, the government could face a financial crisis within the first two weeks of June.
The CBO also predicts that the federal budget deficit will increase to $1.5tn in 2023, $100bn more than previously estimated in February. The report notes that the ongoing Supreme Court case regarding the cancellation of outstanding student loan debt could have a significant impact on total revenue for 2023.
Additionally, a shortfall in tax receipts through April has the potential to further contribute to a larger deficit than initially predicted.
The CBO has projected that the US government's annual deficits will "nearly double over the next decade", reaching $2.7tn in 2033. This projected deficit would result in the highest level of national debt ever recorded in the US, increasing from 98% of GDP at the end of 2021 to 119% at the end of 2033. The report highlights the significant financial challenges that the US government faces in the near future.
If the US government fails to raise the debt ceiling, it could lead to a default on US debt obligations, which could have significant economic consequences both domestically and internationally. A default could lead to higher borrowing costs for the government, higher interest rates for consumers, and a decline in the value of the US dollar. Additionally, a US default could lead to a global financial crisis, as the US Treasury bonds are considered one of the safest assets in the world.
In conclusion, the CBO report serves as a warning that the US government must address its financial challenges and increase the debt limit to avoid a potential default and a significant economic fallout.
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