Watch Out for Fiscal Turmoil: Mark Heppenstall's Perspective
U.S. Treasury official Bessent asserts that default is 'absolutely out of the question' as the debt ceiling deadline approaches.
Join Penn Mutual Asset Management President and CIO Mark Heppenstall as he delves into the delicate dance between U.S. financial markets and regulatory decisions emanating from Washington.
In a candid chat on CBS News' "Face the Nation" on Sunday, U.S. Treasury Secretary Scott Bessent declared that the U.S. government's debt will never go unpaid. The federal government is grappling with a looming deadline to resolve the debt limit issue during the summer.
Faced with questions about the tax package that lawmakers in Congress are pushing, which includes a $4 trillion increase in the debt limit, extending the debt ceiling for about two years considering annual deficits typically hover around $2 trillion, CBS host Margaret Brennan pressed Bessent about the potential risks of default.
Bessent was unflappable, assuring Brennan, "The United States of America is never going to default, Mark my words."
Moody's Cuts US Credit Rating Over Skyrocketing Debt
The U.S. hasn't been immune to the scrutiny of credit agencies. In the midst of the debt limit debate, Moody's Ratings decreased the U.S.'s credit rating from the prime Aaa tier to Aa1[2]. Moody's reasoned that the increased government debt and subsequent interest payments have surged to levels that significantly outpace those of similarly-rated countries.
Bessent's Take on the X-Date and Default Risk
When asked if he thought the government had more leeway if the debt ceiling wasn't raised by mid-July, Bessent remained tight-lipped about the so-called "X date," stating, "We don't dish out the X date because we want to use that to move the bill forward."
Experts have estimated that the X date - when the Treasury will exhaust the budget tools it's currently using to cover its obligations - is likely to be reached in late summer 2025. The nonpartisan Congressional Budget Office (CBO) predicted this, taking into account the inherent uncertainties in tax collections and government spending[4].
The Bipartisan Policy Center provided an estimate closer to the mark, projecting the X date to fall between mid-July and early October 2025.
The CBO's Warning and the High Stakes
Once the Treasury's extraordinary measures have been depleted, the U.S. could face the possibility of defaulting on its obligations. The CBO's report highlighted that this scenario could create chaos in credit markets, lead to turmoil in economic activity, and trigger excessive borrowing rates for the Treasury.
Moody's downgrade of the U.S. credit rating, coupled with the CBO's grim predictions, underscores the pressing need for cooperation among parties to manage America's finances responsibly and avert potential disasters[1]. Stay tuned as the story unfolds.
Enrichment Data:- The recent CBO projections suggest that the U.S. could exhaust its extraordinary measures to manage its debt by mid-August to September 2025, with the potential for a default if lawmakers don't raise the debt ceiling on time[3].- Political leaders are optimistic about reaching an agreement on the debt ceiling to prevent a catastrophic default[3].- The House has passed a bill proposing a $4 trillion increase in the debt ceiling, which is currently under consideration in the Senate[5]. Bipartisan cooperation will be crucial for the legislation to pass smoothly.
- U.S. Treasury Secretary Scott Bessent asserts that the United States' debt will never go unpaid, despite the looming deadline to resolve the debt limit issue during the summer.
- Moody's Ratings decreased the U.S.'s credit rating in the midst of the debt limit debate, citing increased government debt and subsequent interest payments that outpace those of similarly-rated countries.
- The X date, when the Treasury will exhaust the budget tools it's currently using to cover its obligations, is estimated to be reached in late summer 2025, according to the nonpartisan Congressional Budget Office (CBO).
- The CBO's report warns of potential chaos in credit markets, economic activity turmoil, and excessive borrowing rates for the Treasury if the Treasury's extraordinary measures are depleted and the U.S. defaults on its obligations.
- Political leaders express optimism about reaching an agreement on the debt ceiling to prevent a catastrophic default, and the House has passed a bill proposing a $4 trillion increase in the debt ceiling, which is currently under consideration in the Senate. Bipartisan cooperation will be crucial for the legislation to pass smoothly.
