US Faces Looming Default This Summer Unless Congress Acts, CBO Sounds Alarm – Financial Freedom Countdown
The United States is once again facing a financial crisis as the government could run out of money to pay its bills by August or September 2025 if the debt limit is not addressed as per the Congressional Budget Office.
Without congressional action, the government may default on its obligations, triggering severe economic repercussions.
What is the Debt Limit?
The debt limit, often referred to as the debt ceiling, is the legal cap on the total amount of debt that the U.S. Department of the Treasury can issue to the public or other federal agencies.
Established by law, this limit has been raised or temporarily suspended multiple times to accommodate the government’s borrowing needs and ensure continued funding of its operations.
How Did We Get Here?
On June 3, 2023, lawmakers suspended the debt limit through January 1, 2025.
As of January 2, 2025, the debt ceiling was reinstated at $36.1 trillion, forcing the Treasury to implement extraordinary measures to keep the government afloat. While these temporary measures provide some relief, they are only a stopgap solution.
Trump Administration Inherits Debt Crisis
As President-elect Donald Trump prepared to take office, the debt ceiling showdown threatened to become one of his administration’s earliest and most challenging fiscal tests.
Trump had called for the debt ceiling to be abolished, aligning himself—surprisingly—with a position historically favored by Democrats.
The debt limit was suspended in June 2023 as part of the Fiscal Responsibility Act after a contentious negotiation over federal spending, work requirements for receiving government benefits and funding for the Internal Revenue Service.
That suspension expired on 2nd January 2025.
Failed Attempts to Resolve the Issue Before Year-End
Despite Trump’s push to include a provision to raise or eliminate the debt ceiling in December’s government funding bill, Congress declined.
38 GOP lawmakers, mostly hardline fiscal conservatives, joined with most Democrats to sink a spending bill that included the debt ceiling extension leaving the debt crisis unresolved and placing it on the incoming administration’s already packed to-do list.
The Treasury has several tools at its disposal to delay default, including suspending investments in government retirement funds and deferring payments on federal obligations.
However, these measures are finite, and according to the Congressional Budget Office (CBO), they will run out by late summer unless Congress intervenes.
Until the debt limit is raised or suspended, the Treasury relies on its cash balance and extraordinary measures to fund government activities.
As of February 28, it had $560 billion in cash and $62 billion in measures, with an additional $200 billion expected by July 31.
These measures include suspending investments in the Thrift Savings Plan’s G Fund ($42 billion), the Exchange Stabilization Fund ($20 billion), and the Civil Service and Postal Service retirement funds (about $5 billion/month).
The Treasury may also delay reinvestments and interest payments, freeing up $147 billion by June 30.
These actions, along with short-term measures, provide about $820 billion in financing, with the expectation that these funds will be replenished once the debt ceiling is adjusted.
In a final move as Treasury Secretary, Janet Yellen announced that the department will initiate “extraordinary measures”—special accounting tactics designed to avert breaching the debt ceiling—starting January 21, according to a letter sent to congressional leaders.
The Role of Tax Revenue and Spending
The government’s ability to sustain itself depends on tax revenues and controlled spending. If tax receipts are lower than anticipated or expenditures rise unexpectedly, the Treasury could run out of resources even sooner, possibly as early as late May or June 2025.
Large expenditures such as Social Security payments, Medicare, and military salaries add to the urgency of resolving the crisis.
Economic Consequences of a Default
Failure to raise or suspend the debt ceiling could lead to catastrophic outcomes, including:
Disruptions in credit markets: Investors may lose confidence, leading to higher borrowing costs for the government and businesses.
Stock market turmoil: A potential government default could trigger panic selling and economic instability.
Higher interest rates: A loss of confidence in the U.S. government’s ability to meet its obligations could result in increased interest rates for consumers and businesses.
Delayed government payments: Millions of Americans relying on Social Security, military pay, and other federal benefits could see delays in their payments.
What Is the Current Status of the Debt?
The Treasury has reached the current debt ceiling of $36.1 trillion, leaving no room for borrowing under normal procedures, except to replace maturing debt.
To stay within the limit, the Treasury has started implementing extraordinary measures, allowing it to borrow additional funds for a limited period.
If these measures continue, along with regular cash inflows, the Treasury is expected to be able to finance the government’s activities until August or September, according to the CBO, without needing to raise the debt ceiling, delay payments, or face default.
During these months, the Treasury typically borrows more than usual, mainly to fund new student loans issued at that time.
Political Stalemate: A Risky Gamble
Despite the high stakes, Congress remains divided on how to handle the debt ceiling. Some lawmakers demand spending cuts before agreeing to an increase, while others warn that failing to act promptly could undermine the country’s economic stability.
Treasury Secretary Scott Bessent has urged Congress to act swiftly to avoid financial disaster.
“I respectfully urge Congress to act promptly to protect the full faith and credit of the United States,” Bessent wrote in a March 14 letter to Congress.
Comparisons to Previous Debt Ceiling Crises
This is not the first time the U.S. has faced a debt ceiling showdown.
In past instances, last-minute deals have averted defaults, but not without consequences such as credit rating downgrades and market volatility.
The current crisis, however, presents even greater risks given the increased national debt and political divisions.
What Would Happen Once Cash and Extraordinary Measures Are Exhausted?
As per the CBO report, if the debt limit is not raised or suspended, the Treasury would be unable to issue new debt, except to replace maturing securities.
This could lead to delayed payments, a default on debt obligations, or both.
Such actions could cause turmoil in credit markets, disrupt economic activity, and lead to a sharp rise in Treasury borrowing rates.
A Defining Moment for U.S. Fiscal Policy
With the Treasury’s resources dwindling, the urgency to address the debt ceiling crisis has never been greater. Congress faces a pivotal decision: act decisively to prevent economic disaster or risk plunging the country into an unprecedented financial meltdown.
The coming months will determine whether lawmakers can set aside partisan battles to uphold the full faith and credit of the United States.
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The Social Security Administration (SSA) has reinstated a controversial policy that could significantly impact seniors’ finances. Starting March 27, 2025, the SSA will begin withholding 100% of overpayments from Social Security recipients’ benefits, reversing the previous policy that allowed for just 10% withholding. This change is expected to recover approximately $7 billion over the next decade but has raised serious concerns about the financial well-being of vulnerable Americans.
The Social Security Administration (SSA) has announced sweeping budget cuts totaling more than $800 million for fiscal 2025, targeting hiring, overtime, contracts, and operational expenses. While the agency says these reductions will improve efficiency, former officials warn they could have dire consequences, including delayed benefits and potential system failures.
Social Security Slashes $800M in Costs—But Could It Lead to “Breaking Social Security”?
More than 1.1 million Americans have received long-awaited retroactive Social Security payments, with an average payout of $6,710. While this unexpected windfall is welcome news for many, it could come with an unexpected downside—higher taxable income. The Social Security Administration (SSA) confirmed in a March 4 announcement that $7.5 billion has already been distributed following the passage of the Social Security Fairness Act. Updated monthly benefits for eligible recipients will begin in April, but financial experts warn that these lump-sum payments could push some retirees into a higher tax bracket, potentially increasing their tax burden for the year. More than 3.2 million people are set to receive higher Social Security benefits under the newly enacted Social Security Fairness Act. Last month the SSA announced they will begin issuing one-time retroactive payments by the end of March, compensating beneficiaries for missed increases dating back to January 2024. These payments will be deposited directly into bank accounts SSA has on file, though some recipients may see funds before receiving an official notice in the mail.
Social Security Sends Over $7.5 Billion in Retroactive Benefits —But Some May Face a Tax Surprise
Millions of retirees counting on Social Security to keep up with rising costs may face yet another financial squeeze in 2026. The Senior Citizens League (TSCL) has forecasted a mere 2.3% cost-of-living adjustment (COLA) for next year—falling short of inflation and marking a continued trend of inadequate benefit increases. This prediction lags behind the 3.0% yearly rise in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). If accurate, this would mean yet another year where Social Security adjustments fail to keep pace with real-world expenses, leaving many retirees struggling to cover essentials like housing, healthcare, and groceries.
Seniors Brace for Another Social Security Letdown as 2026 COLA Prediction Signals Trouble Ahead
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John Dealbreuin came from a third world country to the US with only $1,000 not knowing anyone; guided by an immigrant dream. In 12 years, he achieved his retirement number.
He started Financial Freedom Countdown to help everyone think differently about their financial challenges and live their best lives. John resides in the San Francisco Bay Area enjoying nature trails and weight training.
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