U.S heading for default in 2025, potentially tanking the U.S. credit rating and sending shockwaves through global markets
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The debt ceiling, which was suspended in June 2023, will automatically adjust to cover all borrowing incurred during that suspension. As of now, the national debt has surged to over $36 trillion, and without congressional action to raise or suspend the limit, the government risks defaulting on its obligations. Treasury Secretary Janet Yellen has warned that a failure to address this issue could lead to severe economic consequences, including a downgrade of the U.S. credit rating and increased borrowing costs. She has repeatedly emphasized that «the U.S. has never defaulted, and it must not now,» underlining the severe consequences of inaction.
Also Read: Janet Yellen urges immediate Congress intervention on debt ceiling; Speaker Mike Johnson in a precarious situation to get deal done or else he may lose his job
The Debt Ceiling Dilemma
The U.S. government operates under a statutory debt limit, which caps the amount of money the Treasury can borrow to pay for existing obligations. As expenditures have outpaced revenues, the Treasury has approached this ceiling, necessitating Congressional action to either raise or suspend it. Failure to do so would mean the U.S. cannot pay its bills, effectively defaulting on its debt.
Impact on U.S. Credit Rating
A default would almost certainly lead to a downgrade of the U.S. credit rating
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