The US national debt has exceeded $32 trillion for the first time ever, two weeks after President Biden signed legislation to suspend the nation’s borrowing limit through the end of 2024. Despite $1.5 trillion in spending cuts over the next decade, America’s gross national debt is still projected to exceed $50 trillion by 2033. The Peterson Foundation recommends establishing a bipartisan fiscal commission to look at all parts of the budget for cuts.
Warren Buffett has criticized the debt-ceiling crisis and called for the removal of the borrowing limit, stating that it never made sense in the first place. He dismissed concerns that Congress won't raise the debt ceiling and the federal government will be forced to default on its loans. Buffett warned that not raising the debt ceiling might be Congress' most idiotic move ever. The US breached its $31.4 trillion debt ceiling in January, and experts believe it could run out of money by early June.
Warren Buffett has criticized the debt-ceiling crisis and called for the borrowing limit to be removed entirely. He believes that not raising the debt ceiling might be Congress' most idiotic move ever. Buffett asserted that as long as the US issues bonds and other notes in its own currency, it will never suffer a debt crisis. However, he cautioned that printing too much money and fueling runaway inflation is a concern when a country spends freely. The US breached its $31.4 trillion debt ceiling in January, and experts believe it could run out of money by early June.
The resolution of the US debt-ceiling fight is expected to lead to a flood of Treasury bill issuance, with new bill issuance estimated to reach about $1.4tn through the end of 2023. Money-market funds, which have climbed to nearly $5.4tn in assets managed since the regional banking crisis erupted in March, are expected to be a key buyer of the bill supply. However, the bills may need to exceed the roughly 5% rate offered by the Federal Reserve's reverse repo facility by about 10-20 basis points to attract buyers. The 1-month Treasury yield rose to almost 5.6% on Tuesday, while the 3-month yield was 5.3%, according to FactSet.
Main Street investors are rattled by fears of a potential default as the deadline for Congress and President Biden to raise the government's borrowing limit approaches. Many investors are shifting their emergency cash into Treasuries, but some are holding onto cash instead. Rising interest rates had attracted investors to Treasuries, but the possibility of an unprecedented U.S. borrowing snafu has spooked them.
The cost of insuring US Treasuries against default has surpassed that of some emerging markets and even junk-rated nations, as investors grow increasingly anxious about the prospect of a first-ever US default. Credit-default swaps on one-year Treasuries have hit a record high, making it more expensive to insure Treasuries than the bonds of countries like Greece, Mexico, and Brazil, which have defaulted multiple times and have lower credit ratings than the US's AAA. With politicians running out of time to lift the borrowing limit before the government runs out of money, the situation remains uncertain.
Former US Treasury Secretary Lawrence Summers has said that the chances of a technical default on US debt due to legislation around its borrowing limit are at around 2%-3%, but any default would be fixed quickly. Summers also said that the chances of a default due to insolvency were much lower. The comments come as Republican US House Speaker Kevin McCarthy said lawmakers would vote on Wednesday on a bill to raise the $31.4tn federal debt ceiling and slash spending, despite lingering dissension within their ranks over the bill.
