About the Debt Default Clock

FOUR MINUTES TO MIDNIGHT: THE UPDATED “FEDERAL GOVERNMENT DEBT DEFAULT CLOCK”

The Default Clock Committee,
July 29, 2022

Beyond the troubling debt-ceiling standoffs we witness every few years, looms a far more dire threat: a true U.S. government default, which economists warn could lead to a collapse of confidence in the American economy, a run on the dollar, and perhaps even a global economic meltdown.

How close are we to such a catastrophic federal default?

To answer this question, a group of private-sector economists and fiscal policy experts has formed a citizens’ committee, called the Debt Default Clock Review Committee, to maintain an objective, fact-based federal government Debt Default Clock. The Clock is designed to help the public to see and track the nearness of the danger. The Review Committee is continuing to use this Clock design. It completed the review prior to the one found here in March of 2021.

For the Committee’s purposes, “default” is defined simply as a failure by the U.S. Treasury to make a scheduled interest payment on just one direct U.S. Government obligation such as a Treasury note or bond. “Insolvency” is defined as the point beyond which default becomes a virtual certainty.

Until recently, Congress had gotten into the habit of suspending the government’s statutory debt ceiling, for periods of a year or two, during which time the Treasury may incur unlimited amounts of debt. It broke this habit in December of 2021 by enacting a dollar-denominated debt ceiling law (Public Law 117-73). Thus, the debt ceiling is now set at just shy of $31.4 trillion and the federal government could run up against the ceiling as soon as late 2022. Clearly, Congress is not treating the current debt ceiling as a real ceiling and could resume the dangerous practice of suspending the ceiling. Worse, Congress may decide to repeal outright the debt ceiling law. This is something Treasury Secretary Janet Yellen recommended in 2021. Repealing the debt ceiling does not repeal the threat of a default. Indeed, to think that it would or could is akin to thinking we can be assured of perpetually sunny days if we simply destroy the barometer! Congress seems to be telling itself: “If I just increase the credit limit on my credit card, I will never have to pay it off!” This irresponsible view, unfortunately, was reinforce by the Federal Reserve’s actions in response to the pandemic in the course of 2020 and 2021. The Federal Reserve had taken the action of reducing interest rates, which also has the effect of reducing the average rate on the Treasury securities used to finance the federal debt. The Federal Reserve has also expanded dramatically its holdings of Treasury securities. These actions are important contributing factors to the currently high rates of inflation, and now the Federal Reserve has been forced to start raising interest rates and reducing its holdings of Treasury securities. These newly initiated actions are likely to increase pressures on the Treasury securities market.

Combined, these two new steps by the Federal Reserve could accelerate the onset of federal insolvency and ultimately default by increasing the government’s interest costs dramatically. Already, the Congressional Budget Office projects that cumulative federal government gross interest costs over the ten-year budget period (2023 through 2032) will exceed $10 trillion. The structure of the Clock is designed to account for both the near-term and long-term effects of Federal Reserve’s actions on the fiscal posture of the federal government.

The debt ceiling is the federal government’s most important fiscal barometer, and it should be treated as a ceiling by enacting budgets that prevent increases in the debt to the point that it would risk breaching the ceiling. The Review Committee hopes the Debt Default Clock will help the public to read the immediacy of the danger by showing it in a clear and simple way how close the federal government is to default. Its purpose is to spur fiscal policy makers to change course before it’s too late.

The Twelve Tests

The Clock continuously measures twelve of the most relevant budget factors, or tests, each of which is framed as a simple yes-no question. At any given moment, the status of the twelve factors collectively determines the number of minutes from midnight the Clock stands at the point of its latest update. The number of minutes, of course, changes as time passes and new data is received. Each factor assesses, not just where things currently stand, including the dramatic changes having taken place since the March 2021 update, which are continuing, but also where things are projected to move over the course of the next ten years. Each of the twelve tests is objective. None is arbitrary or influenced by opinion.

Here are the twelve factors:

  1. Do federal outlays exceed 17.5 percent of gross domestic product (GDP)?
  2. Is there a U.S. dollar-denominated debt ceiling in law presently, and will the projected federal debt stay below that ceiling during the ten-year budget period?
  3. Does the debt held by the public exceed 70 percent of GDP, and does the gross federal debt exceed 100 percent of GDP?
  4. Do gross federal interest payments exceed 15 percent of federal revenues?
  5. Do gross federal interest payments, on a sustained basis, exceed 70 percent of the money the federal government brings in through the issuance of new debt?
  6. Does the ratio of debt held by the public exceed 80 percent of the gross debt?
  7. Does the debt held by foreigners exceed 50 percent of the debt held by the public?
  8. Is the structure of the debt, specifically regarding the dollar volume of the debt in Treasury inflation-protected securities (TIPS), Treasury Floating Rate Notes (FRNs), and other debt instruments that mature in five years or less, exceed 50 percent of all marketable Treasury securities?
  9. Are federal revenues below 17.5 percent of GDP?
  10. Is the rate of real U.S. economic growth, as measured in GDP, at 3 percent or above on an annual basis?
  11. Has Congress enacted a law prohibiting the Treasury from resorting to “extraordinary measures” in the future?
  12. Is Congress scaling back programmatic “mandatory spending” and eventually phasing it out?
  13. While economists and financial experts will readily appreciate the relevance of each of these factors, we realize that the lay reader may find them confusing. For everyone’s benefit, the following is a detailed, plain-English explanation of each factor, together with its underlying data and assumptions.

Warning: Default Ahead

The federal government will reach insolvency—the point of no return—when the federal government fails at least ten of the twelve tests set according to the questions listed above. As of right now, the,federal government is currently failing in seven of them. These are Factors 1, 3, 8, 10, 11, and 12. Four factors (Factors 2, 4, 5 and 6) buy one minute from midnight each, based on the current circumstance and projections. Therefore, as of today, the Debt Default Clock now stands at just four minutes from midnight. This is one minute more from where it stood at the time of the last review in March of 2021. However, this modest improvement follows from reasons that are different from the prior update. Specifically, the outcomes have improved for Factors 2 and 9 by Congress enacting a dollar-denominated debt ceiling and higher than previously expected levels of revenue. On the other hand, the outcome has deteriorated for Factors 4 and 5 because of projected increases in federal interest costs.

The design of the Clock also permits the Review Committee to discount up to two factors at any one time. On this basis, the Committee has decided to discount Factors 7 and 9. The first of these measures the percent of federal debt held by foreigners. The current projections of foreign-held federal debt, as it did in the previous review, are that it will increase modestly in dollar terms over the next ten years but will decline relative to the total amount of debt held by the public. Regarding Factor 9, current projections are that federal revenues are now above the average for that over the last decade as a share from gross domestic product and will stay above this average during the next ten years. Thus, Factors 7 and 9 are currently not significant contributors to the danger of federal insolvency and default. These discounts are in accordance with the design of the Clock.

As indicated earlier, Factors 2, 4, 5 and 6 each buy one minute from midnight. At the time of the March 2021 update, Factor 2 bought no minutes from midnight because the debt ceiling law was suspended at the time. It now buys one minute from midnight because of Congress’ enactment of a law restoring a dollar-denominated debt ceiling. Factor 4 bought one minute from midnight in March of 2021 because gross federal interest costs were projected to be below 15 percent of revenues in the early and middle years of the ten-year budget period. While Factor 4 will continue to buy one minute from midnight here, the Review Committee notes that federal gross interest costs are projected to increase dramatically relative to revenues and could exceed the threshold for buying zero minutes from midnight sooner than expected earlier. Currently, it is projected to exceed the threshold in 2024. In March 2021, Factor 5 was discounted by the Review Committee because the projections at that point did meet the “sustained basis” test for this factor. Now, it meets this test and buys the one minute from midnight. The Review Committee notes, however, that projected increases in gross federal interest costs relative to the issuance of new debt are growing dramatically, which resembles the pattern for Factor 4. Factor 6 is slightly improved from where it stood in March of 2021. It continues to buy one minute from midnight. Current data project that it will exceed its threshold in 2025.

Based on the current projections for these four factors, the Review Committee is able to translate the conceptual minutes to midnight into a real-world timeline. However, it is essential to keep in mind that this timeline is derived from the Debt Default Clock design. This means that improving and deteriorating conditions in any of the applicable factors will change with circumstances and result in revisions to the real world timeline, both positive and negative. Currently, it is likely that the federal government will approach the existing debt ceiling under Factor 2 in the coming months. At that point Congress could revert to suspending the debt ceiling or repeal the debt ceiling law. The current projection for Factor 4 shows that it was on the right side of its threshold in 2021 but will cross over to the wrong side of threshold in 2024 and remain there. Factor 5 is currently on the right side of the threshold but will cross over to the wrong side in 2027. Factor 6 is projected to cross to the wrong side of its threshold in 2025 and stay that way thereafter. If the Review Committee decides to maintain the discounts for Factors 7 and 9 in the future, the federal government will reach the circumstance of fiscal crisis and insolvency at some point in 2027 and ultimately default a short time later. Finally, the longer it waits before taking the necessary steps to avoid insolvency and default — which include reducing the rate of growth in spending, limiting the debt and better controlling interest costs — the more politically difficult and economically painful these steps will become.

The Default Clock is ticking.

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The Debt Default Clock Review Committee responds to the new debt ceiling and the use of “extraordinary measures.”

Databases behind ten of the factors of Debt Default Clock

Factor #1: Do federal outlays exceed 17.5 percent of GDP?

Federal outlays have been well above 17.5 percent of GDP every year since 2013. In 2020, they exploded to more than 31 percent of GDP because of the spending laws enacted in response to the coronavirus pandemic. This compares with federal outlays constituting 21 percent of GDP in 2019. While the same projection shows that outlays as a share of GDP fell back from the 2020 level in 2021, in the years that follow the level of federal outlays will remain well above what is affordable. This current projection shows that in the final year of the budget period (2032) outlays will be at 24.3 percent of GDP. Thus, Factor #1, as with the previous update of the Debt Default Clock, remains set at buying zero minutes from midnight. The data bases for this factor are as follows: 1) Congressional Budget Office, “Budget and Economic Data,” under the heading “Historical Budget Data” and subheading “Revenues, Outlays, Deficits, Surpluses, and Debt Held by the Public as a Share of GDP Since 1962,” May 2022, here; and 2) Congressional Budget Office, “The Budget and Economic Outlook: 2022 to 2032,” May 2022, p. 7, here.

Factor #2: Is there a dollar-denominated debt ceiling in place, and if so, does the debt subject to limit stay under the ceiling during the budget period?

Congress put a dollar-denominated debt ceiling in place with the enactment of Public Law 117-73 in December of 2021. Public Law 117-73 raised the debt ceiling by $2.5 trillion, setting it at just shy of $31.4 trillion. Thus, Factor #2 now buys one minute from midnight, where it bought zero minutes from midnight at the time of the last update in March of 2021 because the debt ceiling law was suspended at that time. This improvement, however, is likely to be short-lived. As the accompanying chart shows, the federal government will once again run up against the debt ceiling in a matter of months. Clearly, Congress has no intention to treat this current debt ceiling as a real ceiling by following a budget plan that avoids running up against it. Rather, there is a good chance that Congress will revert to the habit of suspending the debt ceiling. Worse, it could permanently repeal the debt ceiling law. In either case, there would be no limit on increasing levels of federal debt and Factor #2 will lose the one minute it is currently buying. The data for Factor #2 is from CBO’s “Budget and Economic Outlook, 2022 to 2032,” May 2022, p. 14, found here.

Factor #3: Does the debt held by the public exceed 70 percent of GDP, and does the gross debt exceed 100 percent of GDP?

The current data on both the debt held by the public and the gross debt show that they have been in the past and will in the future continue to exceed 70 percent and 100 percent of GDP respectively. In fact, the debt problem has been made much worse by the additional spending that has taken place in response to the coronavirus pandemic. The debt held by the public was at 99.6 percent of GDP at the end of fiscal 2021 and by the end of the budget period (2032) is to rise to 109.6 percent of GDP. The gross debt was at 123.5 percent of GDP at the end of fiscal 2021 and is to be at 122.4 percent of GDP at the end of fiscal 2032. Since both the debt held by the public and the gross debt already exceed 70 and 100 percent of GDP respectively by a wide margin and are projected to remain well above these thresholds, Factor #3, as was the case at the time of the prior review, buys zero minutes from midnight. Looking ahead, this factor will buy one minute from midnight if the debt held by the public and the gross debt are projected to fall below their respective thresholds at some time during the budget period. It will buy two minutes from midnight if they actually fall below their thresholds and are projected to remain below them throughout the budget period. The data bases for Factor #3, whether provided directly or used to calculate the outcome, are as follows: 1) Office of Management and Budget, “Historical Tables,” Table 7.1, in “Budget of the U.S. Government, Fiscal Year 2023,” March 28, 2022, here; 2) Congressional Budget Office, “The Budget and Economic Outlook: 2022 to 2032,” May 2022, p. 14, here; 3) Congressional Budget Office, “Budget and Economic Data,” under the subheading “10-Year Economic Projections,” May 2022, here.

Factor #4: Do gross interest costs exceed 15 percent of federal revenues?

At the time of the last Clock review in March 2021, the level of gross federal interest costs relative to revenues were projected to fall below 15 percent in fiscal 2021 and stay below this threshold until 2030. This projection for 2021 is now confirmed, but current projections show the threshold will be exceeded in 2024. This is a dramatic deterioration. While Factor #4 bought one minute from midnight at that the time of the prior update, it seemed possible that Factor #4 could buy two minutes from midnight in future updates. This comes despite unexpected improvements in revenue numbers at this time, which are described later under Factor #9. While Factor #4 continues to buy one minute from midnight now, it is realistic to expect Factor #4 will buy zero minutes from midnight in future updates. A part of the reason for this expectation is that data bases used by CBO use established performance records on both revenues and gross interest costs to calculate its projections. Currently, federal interest costs are increasing rapidly and this will be accounted for in future projections. Further, it is important to recognize that the Federal Reserve’s earlier actions to reduce interest rates and expand its holdings of Treasury securities in response to the coronavirus, which had a corresponding impact on lowering the average interest rate for the Treasury securities used to finance the debt and gross interest costs incurred by the federal government, has come to an end. This is indicative of the failure of the Federal Reserve’s partial experiment with modern monetary theory or MMT. The proponents of MMT assert that the federal government can monetize a growing federal debt on an unlimited basis, with little risk of adverse economic outcomes. It is now clear that such a policy leads to rapidly growing rates of inflation. The data bases for this Factor are as follows: 1) Department of the Treasury, “Interest Expense on the Debt Outstanding,” at here (accessed July 11, 2022); 2) Congressional Budget Office, “The Budget and Economic Outlook: 2022 to 2032,” May 2022, p. 7, at here; 3) Congressional Budget Office, “Budget and Economic Data,” under the heading “Historical Budget Data” and subheading “Revenues, Outlays, Deficits, Surpluses, and Debt Held by the Public Since 1962 through the most recent year completed,” May 2022, at here; and 4) and under the heading “Spending Projections by Budget Account” (specifically Line 1957, “Interest on Treasury Debt Securities (gross)”), May 2022, at here.

Factor #5: Do gross federal interest payments, on a sustained basis, exceed 70 percent of the money the federal government brings in through the issuance of new debt?

The March 2021 update of the Debt Default Clock showed that the combination of the assumption of a large of amount new debt resulting from the increase in spending in response to the coronavirus and lower gross interest costs resulting from the action by the Federal Reserve to lower interest rates and expand its holdings of Treasury securities was an isolated event , and therefore not consistent with the “sustained basis” standard for Factor #5. This caused the Review Committee to decide to discount Factor #5. This action was consistent with the Clock’s design, which permits the Committee to discount up to two factors. Currently, the Review Committee has determined there is a sustained pattern of increasing federal interest payments relative to the money to be brought into the federal government by the issuance of new debt. Thus, it is no longer discounting Factor #5. This pattern projects that interest costs will exceed the threshold of 70 percent of new debt in 2027. Thus, the activation of Factor #5 buys one minute from midnight. The data bases for this factor are: 1) Office of Management and Budget, “Historical Tables,” Table 7.1, “Federal Debt at End of Year:1940-2027,” March 28, 2022, (accessed July 11, 2022): at here; 2) Congressional Budget Office, “The Budget and Economic Outlook: 2022 to 2032” May 2022, p.14, at here; 3) Department of the Treasury, “Interest Expense on the Debt Outstanding,”at here; and 4) Congressional Budget Office, “Budget and Economic Data,” under the heading “Spending Projections by Budget Account” (specifically Line 1957, “Interest on Treasury Debt Securities (gross)”), May 2022, at here.

Factor #6: Does the debt held by the public exceed 80 percent of the gross debt?

Factor #6 measures what is currently projected to be an increasing share of the gross federal debt that must be financed by investors outside the federal government (“debt held by the public”), as opposed to trust funds maintained by the federal government itself. This greater reliance on debt held by the public increases the pressure on the Treasury to attract investors to finance the debt. The Debt Default Clock estimates that the debt held by the public will exceed 80 percent of the gross debt starting in 2025. As with the previous update, Factor #6 buys one minute from midnight. If the projection proves accurate, Factor #6 will cease to buy one minute from midnight in just three years. This new projection shows that the situation for Factor #6 is continuing to deteriorate in roughly the same way as projected in March of 2021. The projected data base for this factor is found at: Congressional Budget Office, “The Budget and Economic Outlook: 2022 to 2032,” May 2022, p. 14, at here. The historical data is found at the Office of Management and Budget, “Historical Tables, Table 7.1, Federal Debt at the End of the Year: 1940-2027,” March 28, 2022, at here.

Factor #7: Does the debt held by foreigners exceed 50 percent of the debt held by the public?

As with the March 2021 update of the Debt Default Clock, this update shows that the dollar value of the debt held by the public owned by foreigners is projected to remain below 50 percent of all the debt held by the public throughout the ten-year budget period. This is due to the fact that in recent years the rate of growth in the dollar level of foreign-held federal debt, which in general continues to grow, is also moving in the direction of making up a smaller portion of all debt held by the public. The Clock’s projection shows that foreign-held federal debt will fall to 30 percent of all the debt held by the public at the end of the 10-year budget period in 2032. This means that Factor #7 would have continued to buy two minutes away from midnight, but the Review Committee has decided to extend its earlier decision to discount Factor #7. It continues to believe this trend will lessen the risk that foreign powers will be able to weaken the financial and political position of the federal government by taking advantage of the government’s debt exposure. The data bases for this Factor are: Department of the Treasury, “Ownership of Federal Securities,” at here (accessed July 12, 2022); 2) “Congressional Budget Office, “The Budget and Economic Outlook: 2022 to 2032,” May 2022, p. 14, at here; and 3) Congressional Budget Office, “Historical Budget Data,” in the category entitled “Revenues, Outlays, Deficits, Surpluses, and Debt Held by the Public, Since 1962,” May 2022, at here.

Factor #8: Will short-term maturities and floating rate obligations of the Treasury decline from the 2018 level of 73.1 percent of all marketable Treasury debt?

The Monthly Statement of the Public Debt of The United States (the “Monthly Statement”) describes six types of securities comprising the marketable Treasury debt outstanding. They are Treasury Bills (“Bills”), Treasury Notes (“Notes”), Treasury Bonds (“Bonds”), Treasury Inflation-Protected Securities (“TIPS”), Treasury Floating Rate Notes (“FRN’s”) and Federal Financing Bank (“FFB”) securities. The Monthly Statements, including attached Excel spreadsheets, are available at Monthly Statement of the Public Debt (MSPD) | U.S. Treasury Fiscal Data (accessed July 14, 2022) Treasury Bills are short-term obligations with a maturity of less than one year. Treasury Notes are issued with maturities of between one and ten years. Treasury Bonds are issued with maturities in excess of ten years. For purposes of the Debt Default Clock on any given date, all Bills and previously issued Notes and Bonds maturing within five years of that date, along with all TIPS and FRN’s, which are adjustable rate securities subject to periodic adjustments in their interest rates, are categorized as short-term maturities and floating rate obligations (“STMFROs”). The Monthly Statement does not provide the maturity dates for FFB securities, but generally describes them as long term. Thus, they are not included in STEMFROs and set aside here.

As of June 30, 2022, all the STMFROs constituted 73.5 percent of all the marketable Treasury debt outstanding, as measured in dollars. This is a bit lower than their percent of all marketable Treasury debt as of September 30, 2020. This structure of the marketable debt jeopardizes the financial position of the Treasury by leaving it vulnerable to increases in both the inflation rate and interest rates. Specifically, Treasury interest costs will rise very quickly with higher inflation and interest rates because of the current structure of the debt. These inflation and interest rate hikes are taking place now. It is the view of the Debt Default Clock Review Committee that the portion of all Treasury marketable securities made up by the STMFROs, as measured in dollars, should be reduced to 50 percent of the total. Factor #8 of the Debt Default Clock will move the minute hand one minute away from midnight for every five percentage points reduced from the 71.3 percent of marketable securities that constituted the STMFROs at the end of fiscal year 2018. Thus, Factor #8 continues to buy zero minutes from midnight. The modest improvement in this factor relative to the March 2021 update is still a long way from buying even one minute from midnight. Further, the Review Committee is worried that with the current increases in inflation and interest future steps to move away from short-term and adjustable-rate securities will come too late to improve the financial position of the Treasury in an effective way. A current dramatic example of federal government’s exposure to higher interest rates is that the interest rate on I-Series bond, which is “inflation protected,” was set 9.62 percent in July of 2022.

It is important to note that the Review Committee also continues to monitor the bid-to-cover ratios at auctions for four select Treasury securities. These are the 26-week bill, the 10-year note, the 30-year bond and the 10-year TIPS. These bid-to-cover ratios compare the amount of money investors bid on the applicable security at auction to the amount of money the Treasury is seeking to raise at the same auction. A persistent or rapid decline in the bid-to-cover ratios would likely signal a growing loss of confidence by investors in the ability of the federal government to manage its debt. As of the end of fiscal 2021, the data reveal a modest decline in the bid-to-cover ratios in each of these securities over the last four or five years. At this point, the Review Committee does not find this modest decline alarming, the risk of declining bid-to-cover ratios remains relevant. While the ratios here are not being incorporated into Factor #8, they will be used as a secondary source for informing the Review Committee of any emerging problems resulting from the structure of the federal debt.

Factor #9: Are federal revenues below 17.5 percent of GDP?

The data bases for this Factor are found at: 1) Congressional Budget Office, “The Budget and Economic Outlook: 2022 to 2032,” May 2022, p. 7, at here; 2) Congressional Budget Office, “Historical Budget Data/Revenues, Outlays, Deficits, Surpluses and Debt Held by the Public Since 1962, as a share of GDP,” May 2022, at here. Federal revenues were at 18.1 percent of GDP in 2021. CBO projects they will rise to 19.6 percent of GDP in 2022 and remain above the 17.5 percent threshold throughout the ten-year budget period. Accordingly, the Review Committee finds that Factor #9 would have bought two minutes from midnight on the Clock. However, the Committee has also decided to discount Factor #9 at this time, in accordance with rules governing the Clock. This means that revenue shortfalls, by historical standards, are not a significant contributing factor to the onset of fiscal crisis. However, this determination will be reversed if future updates show declines in the ratio of revenues to GDP compared to the current projections.

Factor #10: Does the real rate of U.S. economic growth, as measured in GDP, meet or exceed 3 percent annually?

The data bases for Factor #10 are found at: 1) Bureau of Economic Analysis (BEA), Department of Commerce, here, Table 1 under “Tables Only,” under the heading “Gross Domestic Product” at here (historical data); 2) Congressional Budget Office, “The Budget and Economic Outlook: 2022 to 2032,” May 2022, p. 23, at here.

The negative impact of the coronavirus pandemic on U.S. economic growth was very large in calendar year 2020. It shrank by 3.5 percent in real terms. However, the rebound was sharp in 2021, with a real rate of growth at 5.7 percent. CBO is now projecting a a real rate of growth of 3.8 percent in 2022. While the Review Committee welcomes the rebound that has taken place over 2021 and may take place in 2022, it finds it essential to point out that this is a rebound. When compared to the end of 2019, the average annual real rate of growth over 2020, 2021 and into 2022 is less than three percent per year. Further, the partial data on real economic growth for 2022 makes it possible that CBO’s projection for this year may be optimistic. Finally, CBO is projecting that annual rates of real growth will be below the three percent threshold for the remainder of the budget period. In March of 2021, the Review Committee found that Factor #10 bought zero minutes from midnight. Now, it finds that it continues to buy zero minutes from midnight.

Factor #11: Has Congress enacted a law prohibiting the Treasury from resorting to “extraordinary measures” in the future?

This is a purely qualitative factor. Therefore, there are neither data bases, nor formulas, nor graphs associated with Factor #11. It adjusts the minute hand on the Debt Default Clock on the basis of the legislative actions, or the lack thereof, taken by Congress in the applicable legislative period. Specifically, if either house of Congress has passed such a bill during the congressional session in operation at the time of a review, it will buy one minute away from midnight. If such a law is enacted and remains on the books at the time of the applicable review by the Review Committee, it will buy two minutes from midnight. Since current law permits the Treasury to undertake extraordinary measures and Congress has taken no action to prohibit the use of them, Factor #11 continues to buy no minutes from midnight.

As described earlier, on December 16, 2021, Public Law 117-73 was enacted to replace a previous suspension of the debt ceiling with a dollar-denominated debt ceiling. Prior to that in the course of 2021, the Treasury resorted to extraordinary measures in managing the debt. In the view of the Review Committee, extraordinary measures are “soft” defaults by the definition of default under the Debt Default Clock and sees these as precedents for expanding such measures to apply to certain categories of debt held by the public. The Treasury, therefore, not only retains the authority to use extraordinary measures, it continued to set these bad precedents for much of 2021.

Factor #12: Is Congress scaling back programmatic “mandatory spending” and eventually phasing it out?

Mandatory programmatic spending, which sets aside net interest payments, does not require the annual appropriation of money by Congress. Effectively, these spending programs are on autopilot. According to CBO, programmatic mandatory spending was more than $4.8 trillion in 2021. This compares with roughly $2.7 trillion in 2019. The large jump is due to the mandatory spending in the various pandemic response bills enacted to date. The same analysis indicates this number will fall back to a bit more than $3.75 trillion in 2022, but this is dependent on Congress not enacting additional spending laws in this area or making all the coronavirus spending programs permanent. In fact, congressional leaders were as of the time of this update planning to enact additional spending measures. As it stands, CBO projects mandatory spending to grow to more than $5.4 trillion in 2032.

Congress needs to rein in these programs by moving them back into the appropriated accounts of the budget in order to review this spending on an annual basis. By starting to take such steps, Congress should be able to reduce this category of spending dramatically. In fact, it should phase it out altogether. Under the Debt Default Clock, if Congress returns enough of this spending to the appropriated category so that by the end of the ten-year budget period the mandatory category is less than what it was in 2018, it will will buy one minute away from midnight. If the mandatory category is projected to be phased out altogether by the end of the budget period, it will buy two minutes from midnight. Therefore, Factor #12 continues to buy no minutes from midnight.

The data bases for Factor #12 are found at: Congressional Budget Office, “The Budget and Economic Outlook: 2022 to 2032,” May 2022, p. 7, at here; Congressional Budget Office, “Historical Budget Data, Data on revenues, outlays, and the deficit or surplus from 1962 through the most recent year completed” May 2022, at here.

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