Bessent Warns That the US Has Reached the "Warning Line" of Debt, but Still Insists It Will Not Default

US Treasury Secretary Bentsen warned again on Tuesday while answering questions in the House of Representatives that the US Treasury Department was on "high alert," meaning it was close to exhausting its capacity to stay within the federal debt ceiling, but he did not provide a specific timeframe.

When answering questions before the House Appropriations Committee, Bentsen said, "When we believe we are approaching the so-called 'X-date,' we will share this information with Congress." He noted that the Treasury Department was still tallying tax revenues from the most recent filing quarter.

The "X-date" refers to the day when the Treasury Department is unable to pay all of the government's bills on time.

The US debt ceiling was reinstated in early January this year, and the US Treasury Department has since been using extraordinary accounting measures to maintain federal obligation payments while avoiding breaching the debt ceiling. Wall Street analysts estimate that the US Treasury Department may need Congress to raise or suspend the debt ceiling between August and October.

Bentsen once again assured that the US government would never default on its debt and promised that the Treasury Department would not use "gimmicks" to circumvent the debt ceiling.

In fact, concerns over the risks associated with the debt ceiling have already had a certain impact on the stability of the US financial system and even the decision-making of the US Fed over the past few months.

The January minutes of the US Fed indicated that at that time, many participants pointed out that it might be appropriate to consider pausing or slowing down the reduction of the balance sheet until the debt ceiling issue was resolved. Ultimately, the US Fed did decide at its March policy meeting to further slow the pace of balance sheet reduction starting in April: reducing the monthly redemption cap for Treasuries from $25 billion to $5 billion, while maintaining the monthly redemption cap for agency debt and agency mortgage-backed securities at $35 billion.

In a letter to lawmakers in March, Bentsen stated that the Treasury Department would extend the use of extraordinary measures until June 27 to allow the federal government to pay its bills until Congress resolves the debt ceiling issue. Bentsen also noted at that time that due to "considerable uncertainty," the Treasury Department could not estimate how long the extraordinary measures and cash would last, and the department expected to provide an update to Congress in early May.

Bentsen's latest remarks this week are undoubtedly a response to the latest developments regarding the debt ceiling issue.

It is worth mentioning that Phillip Swagel, Director of the US Congressional Budget Office (CBO), also stated earlier this week that the US Treasury Department would likely be able to continue paying government bills until late summer, at which point Congress must take action to raise or suspend the debt ceiling.

Once the US Treasury's so-called "extraordinary measures" or special accounting techniques are exhausted, the US government will face the risk of debt default unless legislators and the President agree to lift the restrictions on the government's borrowing capacity.

The history of the debt ceiling dates back to 1917, when the US Congress granted the Treasury more flexibility in borrowing to finance the US's participation in World War I, but with certain limits.

In 1939, Congressional legislators approved the first modern aggregate debt limit of $45 billion, and since then, as spending has consistently exceeded tax revenue, the ceiling has been raised 103 times. As of last October, public debt accounted for 98% of the US's GDP, compared to just 32% in October 2001.

The US Congressional Budget Office had previously warned that the US government's debt level is likely to surpass the all-time high set after World War II in just four years, despite the nonpartisan agency slightly lowering its deficit projections for the next decade. It is projected that by 2029, the total US government debt held by the public will reach 107% of GDP, exceeding the 106% record set in 1946 (just after World War II). By 2035, total debt is expected to reach $52.1 trillion, accounting for 118.5% of GDP.