As of Saturday, the US has officially hit the debt ceiling, capping the national debt at just over $22 trillion. And while the deadline to raise the ceiling is still a few months away, analysts are already worried about a fight that could get ugly.
Congress suspended the debt ceiling for a year in February 2018, which allowed the US to rack up new debt until the limit was reimposed on March 2.
While the country can't add to the debt load until the ceiling is either raised or suspended by Congress, the Treasury Department can use its "extraordinary measures" to move funds around and prevent a breach of the ceiling for a few more months.
According to a report released on Tuesday by the Congressional Budget Office, the Treasury will exhaust the ability to extend the deadline until sometime in late September or early October. The exact date is uncertain this far out because of the variability of tax receipts and potential federal spending.
Raising the debt ceiling is a critical function of Congress because a failure to do so would mean that the US is likely to default on some of its debt. Such an event would almost certainly lead to a credit-rating downgrade for the US, a major stock-market sell-off, and disastrous ramifications for the global economy.
But even with the economic implications, fights over the debt ceiling have become increasingly politicized in recent years, and the difficulty of getting a deal done during the recent 35-day government shutdown has some analysts worried that Congress and President Donald Trump may not be able to reach a deal in time.
"After the longest government shutdown in American history, it is irresponsible not to see a read-through for broader 2019 and 2020 fiscal dysfunction with the mother-of-all 'must pass' bills coming into focus when the US hits its head on the debt ceiling this Friday," Chris Krueger, a policy strategist at Cowen Washington Research Group, wrote in a note to clients.
In previous debt-ceiling fights, deficit hawks — especially those in the Republican Party — have demanded spending cuts to accompany the ceiling increase. And in more recent years, the debt-ceiling fights have become entangled in various issues, such as securing funding for Trump's wall along the US-Mexico border.
Further complicating things is that the timing of the debt-ceiling-breach date will match up with the next round of negotiations on government funding.
But for now, Trump administration officials seem to be putting a positive spin on things. Kevin Hassett, the chairman of the White House Council of Economic Advisers, told CNN that the administration hopes negotiations won't come down to the wire.
"Everybody hopes we can work together and make a positive deal and that it won't come to that," Hassett said.
