The US government debt ceiling comes back into effect today, setting the stage for a fight in Congress to raise the limit before the fiscal year ends on September 30.
With its debt at roughly $22 trillion, the US federal government faces huge economic consequences should it default—something that Fed Chairman Jerome Powell said is “beyond even consideration”. However, the government will not be at risk of defaulting until September, as the Treasury can use “extraordinary measures” to continue financing the government, something it has done frequently in the past.
Given there is no immediate risk, there will be little legislative action from Congress in the short-term. Nonetheless, a standoff between Republicans and Democrats lies ahead. President Donald Trump’s apparent willingness to engage in brinksmanship, akin to that of the December 22 government shutdown, could raise the stakes of negotiations as government funds dwindle.
Expect the debt to take centre stage as the September deadline approaches. Congress has usually recognised the consequences of failing to raise the debt ceiling, but brinksmanship could derail that process. One potential scenario is that lawmakers negotiate a broader agreement as part of the 2020 appropriations process, which, under new House rules, automatically triggers a resolution suspending the debt limit. The resolution would still be subject to Senate and presidential approval however, giving Republicans the power to stall further negotiations.
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