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U.S. Debt Default Before 2024?

The U.S. debt ceiling is a statutory limit set by Congress on the amount of national debt that the federal government is allowed to incur. When the government approaches the debt ceiling, it must either seek an increase in the limit from Congress or take measures to reduce its borrowing.

In the past, the U.S. has come close to breaching the debt ceiling on several occasions, and in some cases, the government has temporarily suspended the limit or taken other measures to avoid default.

The US has failed to pay debt obligations on time on several occasions. This Reason article describes five cases which could be characterized as default, and this Congressional Research Service (CRS) report explores three of them in more detail. The most recent occurrence was the 1979 "mini-default", when a technical error led to the late payment to holders of Treasury securities. CRS says the following about the overall record of US debt repayment:

The historical record appears not to support the contention that the U.S. government has had an unblemished payment record since its origin. Under any reasonable definition of default, the federal government defaulted in 1814. The Treasury Secretary of the time, Alexander Dallas, referred to “every sort of embarrassment.” The current website of the U.S. Treasury notes that Secretary Dallas faced a “bankrupt” Treasury. The failure of the Treasury to pay interest on its securities due to Boston banks in 1814 represents an unambiguous default event.

Regarding the 1979 "mini-default" CRS says:

Claims that payment delays to small investors holding Treasury securities in the spring of 1979 constituted a default or a “technical default” appear weaker. Delays affected only a relatively small proportion of Treasury securities and the federal government responded to mitigate the inconvenience suffered by those investors. The legal document setting out terms for Treasury securities contained no default clause.

According to a CNN article about the potential for a battle over the debt ceiling in 2023 (published December 5, 2022)

Even though federal debt is likely to reach the statutory limit in the next few weeks, Goldman Sachs said the Treasury Department should be able to borrow as usual until late February or early March. At that point, the government could tap a stockpile of $500 billion in cash to finance the deficit until August.

Will the United States default on its sovereign debt before 2024?

This question resolves as Yes if, before January 1, 2024, the President or Secretary of the Treasury announces that the US has defaulted payment on any of its sovereign debt obligations; OR any of the three major credit ratings agencies (Standard & Poors, Fitch, and Moody's) announce US has defaulted payment on any of its sovereign debt obligations.

Moody's, for example, defines a sovereign issuer as in default when one or more of the following conditions are met:

  • 1) There is a missed or delayed disbursement of interest and/or principal, even if the delayed payment is made within the grace period, if any.

  • 2) A distressed exchange occurs, where:

  • a) The issuer offers bondholders a new security or package of securities that amount to a diminished financial obligation such as new debt instruments with lower coupon or par value.

  • b) The exchange had the apparent purpose of helping the borrower avoid a "stronger" event of default (such as a missed interest or principal payment).

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