Debt ceiling panic?

The US Treasury Secretary, Janet Yellen, isn’t sleeping easily these days. She’s worried about the US debt ceiling, which she thinks could be breached as soon as 1 June, less than a month from now. The Congressional Budget Office (CBO) says there is “significantly greater risk that the Treasury will run out of funds in early June". The US government officially ran out of money on 19 January, when it reached the current debt ceiling of $31.4 trillion.

Raising the debt ceiling depends on the US Congress agreeing to push it higher, which so far the Republican Party (which has a majority in the lower chamber, the House of Representatives) is reluctant to do without the federal Democrat government agreeing to budget cuts. It’s a game of chicken for which the stakes are very high.

Without any compromise the US will soon be unable to pay its bills, which will lead the country – and perhaps the world – into a recession. Republicans and Democrats need to come together on this issue but at the moment both are wedded to their positions. Fighting over the debt ceiling is nothing new – it’s been raised 78 times since 1960 – but this time the economic context, of bank failures, inflation, talk of de-dollarization, is more febrile than previously.