The U.S. debt ceiling alarm sounds again; the Treasury may run out of cash by late summer.

As the U.S. debt ceiling issue once again becomes a focal point on fx foreign exchangeWashington's political stage, Treasury Secretary Besant warned the House this week that the U.S. Treasury is gradually approaching "X-day" — the critical point beyond which the government will no longer be able to pay bills on time. Although Besant did not provide a specific date, he emphasized that once this threshold approaches, he will immediately communicate the latest assessment to Congress.

During a hearing of the House Appropriations Committee, Besant noted that the Treasury is still processing income data from the current tax season. "We will promptly inform Congress when we believe we are nearing 'X-day,'" he reiterated, emphasizing once again that the Treasury will not resort to "gimmicks" to circumvent the debt ceiling, and that the U.S. government will not default on its debt.

Since the U.S. federal debt hit the limit again in January of this year, the Treasury has relied on so-called "extraordinary measures" to keep the government running. While these special accounting techniques have effectively delayed the onset of a fiscal crisis, they are merely temporary solutions. In March, Besant wrote to Congress stating that these measures would be extended until June 27, to allow more time for Congress to take action.

Analysts widely believe that the U.S. Treasury's cash and extraordinary measures will be exhausted between August and October, and if Congress has not passed a new debt ceiling bill by that time, an unprecedented risk of fiscal default will be triggered.

The Federal Reserve also remains highly vigilant about the uncertainties surrounding the debt ceiling. According to its January meeting minutes, several officials suggested proceeding cautiously with plans to reduce the balance sheet until the issue is resolved. Ultimately, the Federal Reserve announced in March that starting in April, it would slow the pace of "quantitative tightening," lowering the monthly Treasury redemption cap from $25 billion to $5 billion.

Meanwhile, the U.S. Congressional Budget Office (CBO) has also issued a warning. CBO Director Phillip Swagel stated this week that it is likely the Treasury can maintain bill payments until late summer, but Congress must take action by then, or the U.S. government will face a direct threat of debt default.

The U.S. debt ceiling system began in 1917, originally intended to give the Treasury more borrowing flexibility to support World War I fiscal expenditures. In 1939, Congress established the modern debt limit with an initial cap of $45 billion. Today, U.S. debt has inflated enormously. As of October 2024, U.S. public debt is equivalent to 98% of GDP, significantly higher than the 32% in 2001.

According to CBO projections, if the current fiscal trajectory remains unchanged, U.S. debt will exceed 107% of GDP by 2029, surpassing the historical record set at the end of World War II; by 2035, the total debt is expected to rise to $52.1 trillion, accounting for 118.5% of GDP.

As the countdown to "X-day" accelerates, the standoff between the Treasury and Congress is heating up. If no consensus is reached in time, the U.S. economy, and indeed the global financial markets, will face severe disruptions.

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