This report does not constitute a rating action.
S&P Global Ratings is monitoring developments regarding the U.S. debt ceiling--and the potential implications for the U.S. sovereign credit rating--and addressing frequently asked questions on this topic. Our sovereign credit ratings on the U.S. are AA+/Stable/A-1+.
On Jan. 13, the U.S. Treasury informed Congress that on Jan. 19 the U.S. sovereign debt level would hit the statutory limit established by law. In addition, the Secretary of the Treasury informed Congress that starting Jan. 19, the Treasury would start implementing "extraordinary measures" to continue fulfilling all its legal obligations, including payments on sovereign debt. The Treasury estimates that the use of extraordinary measures will likely provide enough resources for the government to meet its obligations until early June--giving limited time for Congress to either raise the debt ceiling or suspend it.
We expect that Congress will engage in brinksmanship with the debt ceiling but will address it on time, either raising it or suspending it, understanding the severe consequences on financial markets and the global economy of not doing so.
Frequently Asked Questions
What is the debt ceiling?
The debt ceiling is the total amount of money the U.S. government is authorized to borrow to meet existing legal obligations. Such obligations include both mandatory and already appropriated discretionary spending, including social security and Medicare benefits, salaries, interest on debt, and tax refunds. The debt limit does not authorize new spending commitments but provides approval for issuing debt to meet existing legal obligations made by the U.S. government.
Who approves the debt ceiling?
Under the Constitution, Congress has the power to authorize the U.S. government to issue debt based on the credit of the U.S. Until 1917, Congress approved the issuance of individual debt securities and sometimes, during war time, gave approval to the Treasury to roll over short-term debt (with a cap on the outstanding amount of such debt). In 1917, Congress authorized the Treasury to issue debt without necessarily tying the proceeds of an issue to a specific project, giving the Treasury greater discretion to manage the maturity of its debt and improve its debt service profile. In 1939, Congress moved toward setting an aggregate debt limit, creating the current legal framework for sovereign debt management.
Has Congress always approved an increase in the debt ceiling?
Congress has raised the debt ceiling on time on over 80 occasions since 1960. This has occurred during both Republican and Democratic Congresses/administrations. Many of the debt ceiling changes have been agreed in conjunction with major fiscal legislation used as a negotiation tool. During the last 12 years, Congress has passed legislation (and the president has signed it) to raise or suspend the debt ceiling on seven occasions (in 2011, 2013, 2017, 2018, 2019, and twice in 2021) following an impasse on the debt limit.
What happened the last time the debt ceiling came into question?
The debt ceiling had been suspended from August 2019 until the end of July 2021 and was reinstated at the level of outstanding debt on Aug. 1, 2021, as Congress failed to either raise the ceiling or extend its suspension. Subsequently, the U.S. Treasury undertook "extraordinary measures" that allowed it to service sovereign debt in full and on time while keeping debt below the ceiling. On Oct. 14, 2021, President Joe Biden signed legislation to raise the government's debt ceiling by $480 billion (to reach $28.9 trillion), a very limited increase. The Treasury resumed issuing debt but reached the new ceiling by the end of October and again started undertaking extraordinary measures to allow it to service its debt. On Dec. 16, 2021, the president signed a law that raised the debt ceiling to approximately $31.38 trillion (an increase of $2.5 trillion).
What happens when the government's debt reaches the ceiling?
Historically, the Treasury has ceased to issue new debt in the market and has used "extraordinary measures" to avoid defaulting on debt and on other government obligations. Such measures largely rely on borrowing through various means from government accounts, including public-sector retirement funds. Once the president signs a new debt ceiling into law, the Treasury can start to unwind the extraordinary measures and repay the money it borrowed from government accounts by issuing new debt.
What is the economic and political context for the debt ceiling impasse?
Following the 2022 midterm elections, Congress is even more divided than before. The Republicans now have a slim majority in the House and the Democrats in the Senate, setting the stage for what we anticipate will be a highly partisan political debate over the debt ceiling. The Treasury announced this week that it might exhaust its room for maneuver from undertaking "extraordinary measures" after early June. This gives Congress roughly five months to address the issue, longer than the timeline associated with previous debt-ceiling impasses. Given the current political dynamics in Congress, we anticipate that there is likely to be protracted debate before the issue is resolved.
Some analysts had estimated that the Treasury would have reached the current debt ceiling later in 2023, not in mid-January. However, the announcement of that date in January does, in our view, illustrate the impact of recently higher borrowing costs (reflecting higher inflation and interest rates) on the overall cash flows of the government, among other things.
What happens if there is no resolution to the debt ceiling impasse and the Treasury exhausts all "extraordinary measures"? Does that result in a sovereign default?
Such a scenario might have credit rating implications but may not necessarily result in a default.
There is a date at which the Treasury has no more space to deploy extraordinary measures and maneuver to remain under the debt ceiling. At that time, the Treasury would have exhausted its borrowing authority and not have sufficient funds to pay all its bills and legal obligations in full and on time.
Reaching such a date is not necessarily an event of default or the equivalent of missing a debt service payment. Default occurs when a payment of a security is missed (according to our ratings definitions and criteria). After a default is cured, we would assign a new rating based on our assessment of the new circumstances.
This unsolicited rating(s) was initiated by a party other than the Issuer (as defined in S&P Global Ratings' policies). It may be based solely on publicly available information and may or may not involve the participation of the Issuer and/or access to the Issuer's internal documents and/or access to management. S&P Global Ratings has used information from sources believed to be reliable based on standards established in our policies and procedures, but does not guarantee the accuracy, adequacy, or completeness of any information used.
| Primary Credit Analyst: | Joydeep Mukherji, New York + 1 (212) 438 7351; joydeep.mukherji@spglobal.com |
| Secondary Contact: | Roberto H Sifon-arevalo, New York + 1 (212) 438 7358; roberto.sifon-arevalo@spglobal.com |
No content (including ratings, credit-related analyses and data, valuations, model, software, or other application or output therefrom) or any part thereof (Content) may be modified, reverse engineered, reproduced, or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission of Standard & Poor’s Financial Services LLC or its affiliates (collectively, S&P). The Content shall not be used for any unlawful or unauthorized purposes. S&P and any third-party providers, as well as their directors, officers, shareholders, employees, or agents (collectively S&P Parties) do not guarantee the accuracy, completeness, timeliness, or availability of the Content. S&P Parties are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, for the results obtained from the use of the Content, or for the security or maintenance of any data input by the user. The Content is provided on an “as is” basis. S&P PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, FREEDOM FROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT THE CONTENT’S FUNCTIONING WILL BE UNINTERRUPTED, OR THAT THE CONTENT WILL OPERATE WITH ANY SOFTWARE OR HARDWARE CONFIGURATION. In no event shall S&P Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs or losses caused by negligence) in connection with any use of the Content even if advised of the possibility of such damages.
Credit-related and other analyses, including ratings, and statements in the Content are statements of opinion as of the date they are expressed and not statements of fact. S&P’s opinions, analyses, and rating acknowledgment decisions (described below) are not recommendations to purchase, hold, or sell any securities or to make any investment decisions, and do not address the suitability of any security. S&P assumes no obligation to update the Content following publication in any form or format. The Content should not be relied on and is not a substitute for the skill, judgment, and experience of the user, its management, employees, advisors, and/or clients when making investment and other business decisions. S&P does not act as a fiduciary or an investment advisor except where registered as such. While S&P has obtained information from sources it believes to be reliable, S&P does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives. Rating-related publications may be published for a variety of reasons that are not necessarily dependent on action by rating committees, including, but not limited to, the publication of a periodic update on a credit rating and related analyses.
To the extent that regulatory authorities allow a rating agency to acknowledge in one jurisdiction a rating issued in another jurisdiction for certain regulatory purposes, S&P reserves the right to assign, withdraw, or suspend such acknowledgement at any time and in its sole discretion. S&P Parties disclaim any duty whatsoever arising out of the assignment, withdrawal, or suspension of an acknowledgment as well as any liability for any damage alleged to have been suffered on account thereof.
S&P keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of their respective activities. As a result, certain business units of S&P may have information that is not available to other S&P business units. S&P has established policies and procedures to maintain the confidentiality of certain nonpublic information received in connection with each analytical process.
S&P may receive compensation for its ratings and certain analyses, normally from issuers or underwriters of securities or from obligors. S&P reserves the right to disseminate its opinions and analyses. S&P's public ratings and analyses are made available on its Web sites, www.spglobal.com/ratings (free of charge), and www.ratingsdirect.com (subscription), and may be distributed through other means, including via S&P publications and third-party redistributors. Additional information about our ratings fees is available at www.spglobal.com/usratingsfees.