Concerns about the federal debt limit have simmered since the Government reached the limit in January, but things are coming to a boil with the Treasury Department’s confirming that, as early as June 1, “extraordinary measures” may be insufficient to prevent the U.S. from defaulting on its obligations. A default would be unprecedented, creating uncertainty about how the Administration will proceed. It is important, therefore, that contractors understand the circumstances and be prepared to respond effectively to a range of scenarios.
What is the Federal Debt Limit?
The federal debt limit is the maximum amount of money that Congress, by statute, permits the Treasury to borrow. When Treasury reached this borrowing limit in January 2023, it began taking “extraordinary measures” to keep paying the federal government’s bills, but those extraordinary measures can only temporarily stave off default. Once the federal government’s cash on hand is no longer sufficient to pay its bills despite those extraordinary measures, the U.S. could begin defaulting on its payment obligations.