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Investing.com -- The U.S. government faces a potential default on a portion of its $36.6 trillion debt between mid-July and early October if Congress fails to increase the borrowing limit. This projection was made by the Bipartisan Policy Center (BPC) think tank on Monday.
The U.S. government’s borrowing limit has frequently been negotiated up to the last minute by lawmakers, a practice that has unsettled financial markets and resulted in major credit agencies downgrading the federal government’s credit rating. This negotiation pattern continues even though Congress’s own decisions to authorize new spending and cut taxes have led to a rise in the national debt.
The Congressional Budget Office (CBO), a non-partisan body, is expected to present its own projection for the so-called X-date on Wednesday. The X-date refers to the day when the Treasury Department can no longer cover all of its obligations, according to a spokesperson.
Shai Akabas, the vice president of economic policy at BPC, emphasized the urgency of addressing the debt limit in a statement. He said, "Lawmakers cannot afford to delay action on the debt limit," and added that dealing with the debt limit well ahead of the X Date should be a top priority.
The U.S. has never defaulted on its debt, and the global financial markets tend to become nervous at the slightest hint of such a possibility. A 2023 debt ceiling standoff pushed the U.S. to the brink of default and negatively impacted its credit rating.
The exact X-date is hard to determine as it depends on several factors, including the flow of tax receipts with the mid-April deadline for Americans to file their annual tax returns. This year, other factors such as signs of a weakening economy and the imposition of U.S. tariffs on foreign goods by President Donald Trump will also influence the deadline.
Additionally, tax filing extensions granted to aid victims of recent natural disasters are affecting the flow of revenues into government coffers. BPC noted that while it is unlikely, there is a possibility for an early June X-date if tax collections fall short of estimates ahead of quarterly receipts on June 15.
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