Default May Be the Least Likely Outcome of Debt Ceiling Talks

By the numbers: Deutsche Bank analysts forecast a 2% chance of a default, though others may be more pessimistic

U.S. President Joe Biden meets with House Speaker Kevin McCarthy (R-CA) in the Oval Office of the White House on May 22, 2023 in Washington, DC.

Drew Angerer/Getty Images

There's just a 2% possibility the U.S. government will default on its loans, according to analysts at Deutsche Bank, despite days of stalled-out negotiations.

Steven Zeng and Brett Ryan wrote in an analyst note Tuesday that an outright default is the least likely of the possible outcomes in the current debt ceiling crisis.

A default would spur an economic crisis, according to more than 200 economists who wrote a letter to negotiators at the beginning of March. Jobs would be lost across the economy, and the federal government would have higher borrowing costs for years to come. The domino effect from the U.S. breaching its debt limit would also impact economies around the world.

There is a 45% chance lawmakers will come to a resolution before the Treasury is expected to run out of cash on June 1, according to Deutsche Bank estimates.

The analysts also said there is an equal chance that President Joe Biden, Speaker Kevin McCarthy and other negotiating parties will come to an agreement that extends the debt ceiling through September. This would give lawmakers time to come to a more permanent agreement on spending.

There's just an 8% chance that President Joe Biden ignores the debt limit under the 14th Amendment, which states that the "validity of the public debt of the United States...shall not be questioned."

There have been three similar standoffs over the debt ceiling in the past, all of which ended without a default.

Not everyone thinks the chances of default are as low. Mark Zandi, the chief economist at Moody's Analytics, forecasts a 10% chance the U.S. will breach the debt limit. Registered voters are even more pessimistic, with 17% thinking it's very likely the U.S. will default on its debt, according to a survey by Morning Consult.

Article Sources
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  1. Washington Center for Equitable Growth. "Letter to Lawmakers on the Debt Ceiling."

  2. "Fourteenth Amendment Equal Protection and Other Rights, Section 4 Public Debt."

  3. Moody's Analytics. "Debt Limit Scenario Update."

  4. Morning Consult. "National Tracking Poll #2305047."

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