Daily Management Review

Default limit on public debt in the US goes into effect


After a two-year hiatus, the $28.5 trillion national debt limit has come back into effect in the US. This robs the government of its ability to borrow and without urgent action by Congress threatens with a default by October, Bloomberg notes.

Ben Sutherland
Ben Sutherland
The national debt limit, which sets the amount the U.S. federal government is allowed to borrow to cover the budget deficit, went into effect Aug. 1 after a two-year suspension, Bloomberg reported. The federal debt ceiling was set in June 2019 at $22 trillion. The debt limit was suspended for two years in August 2019 as part of a budget deal in Congress. 

Now, after a two-year freeze, the limit has been reinstated at $22 trillion. Taking into account the accumulated debt from August 2019, the amount is adjusted to $28.5 trillion.

This forces Congress to decide whether to raise or suspend the limit again, as a delay could cause a default on US government bonds as early as October, Bloomberg notes.

The US Treasury Department has already begun taking special measures to maintain cash on 30 July by suspending the issuance of securities to help local authorities circumvent the debt limit. House Budget Committee Chairman John Yarmuth and Senator Dick Durbin (both Democrats) said there is no concrete plan to address the debt ceiling problem yet, but it could be solved by budget reconciliation. This would bypass the Republican view, but would hold President Joe Biden's party fully responsible for the potentially unpopular move, Bloomberg notes.

source: bloomberg.com