Jay & Shai's debt ceiling adventure (Update)
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Every year, the U.S. government spends more money than it takes in. And in order to fund all that spending, the country borrows a lot of money. It takes on debt. Congress has the power to limit how much debt the U.S. takes on. Right now, that debt limit, which is also known as the debt ceiling, is $36.1 trillion. But as the spending keeps going and the debt ticks up, we

we get closer and closer to that limit. A little over a week ago, Treasury Secretary Scott Besant said if something isn't done, we will hit the debt ceiling this summer. I will tell you, just as an outfielder running for a fly ball, we are on the warning track.

And when you're on the warning track, it means the wall is not far away. The exact date when the U.S. won't be able to pay all of its bills is so terrifying that it has a special name, the X date. A lot of effort and sometimes some shenanigans go into determining this deadline for Congress to close.

you know, do something to act, to raise the debt limit, to suspend the debt limit, to eliminate the debt limit entirely, or I don't know, maybe try something creative. But the date when we hit the debt limit wasn't always called the X date. Back in 2023, we met the people who basically created the X date world we live in. Today's show is about how we got here. And at the end, we'll have an update on the 2025 X date.

But first, this story we reported back in 2023. It started with a trip to Washington, D.C. on a day of anticipation. A couple of days ago... Oh, people are starting to show up.

Oh, wait, they're hiding. I went to hang out with Shai Akavis. Hello. Hi. Shai has a reputation on both sides of the political aisle for telling it as it is about the debt limit. Not that he likes to brag about his expertise. Being an expert in the debt limit is a little like being an expert on termites. Nobody is really excited to hear the news you have to share, but they do need to know it. Oh, boy. Okay, so you're the termite expert guy, right?

And we're back for another inspection. Shai is the director of economic policy here at the Bipartisan Policy Center, which is a think tank just a few blocks away from the White House. And in a few minutes, Shai and his team are going to get their hands on a document, this data dump. They've been preparing for the arrival of this for weeks, for years, really. And is this a big deal? Is it Christmas? Is it your birthday? Is it Valentine's Day? Yeah.

It's like a big office birthday. An office birthday. So it's kind of like we're all getting cake. We sing. In the form of data and...

Punching that into our computers. Shai and his team are sitting together at the end of this long conference table, laptops and seltzers at the ready. Okay, so it's like an office, it's like a bad office party. It's like a bad office party. No balloons, no streamers. Okay. The document Shai and his team are waiting for is an economic forecast from the Congressional Budget Office.

It's looking at the next 10 years of the federal debt and deficits and many other things. And it's crucial for Shai's team. It's going to come out any second now. Arianna Fennell keeps refreshing CBO's website. So she's refreshing. You're getting real insight into what my job looks like.

Your job looks like a lot of refreshing. A lot of refreshing. A minute to go. With this data, Shai and his team will be able to get to work, figure out when exactly the U.S. government could default on its obligations, when it could run out of money. One time the government did technically default on its obligations for less than a day, but the U.S. has never really blown past the debt ceiling. And Shai is determined to make sure it never happens ever. But first, they need the document. Is that it? It's up.

Hello and welcome to Planet Money. I'm Amanda Aronchik. And I'm Nick Fountain. Today on the show, the story of the first really contentious, down-to-the-wire debt ceiling negotiations. It's the story of how two people armed with a PowerPoint and the pressure of a deadline helped stave off economic disaster. What did they learn from it and why they think this time might be worse?

So it seemed kind of fun and exciting, and now it's showed up and you guys seem like you're working. That is the typical pattern here. Now lots of typing and thinking. Typing and thinking. All right.

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This message comes from Square. Your favorite neighborhood spots are using Square to do everything from covering cash flow gaps to expanding to new locations. Wherever your business is growing, Square meets you there. Go to square.com slash go slash NPR to learn more. If it feels like we've been here before, that's because we have. Congress has adjusted or raised the debt ceiling 78 times since 1960.

But of those times, one stands out as being the most hectic, the most acrimonious, the most detrimental to the health of our economy. The debt ceiling crisis of 2011. Back then, Shai Akabas had just started at the Bipartisan Policy Center as an entry-level staffer. And, you know, there was another new guy there. It was a current chair of the Federal Reserve, Jay Powell. Very.

The Jay Powell. The Jay Powell. Powell had worked at the Treasury Department in the 90s and then made a fortune in private equity, and he was looking for a way to get back into public policy. Yeah, so Jay actually came on as effectively a volunteer. An unpaid intern? Effectively an unpaid intern. I mean, I think we paid him a dollar or something. Soon after Jay Powell came in the door, he got a job.

He got a bad feeling about that year's debt ceiling negotiations. Remember, 2011 was a wild time in politics. It was a little more than halfway into President Obama's first term, and Republicans had just clobbered Democrats in the midterms. In part, thanks to a new wing of hardcore Republicans who were sick of taxation and government spending. They were called the Tea Party, and they were very into theatrics and costumes. And wigs.

And we do this colonial outfit to remind the current government of the first revolution. And we are in a revolution right now, the American people. They would show up at press conferences in full Revolutionary War cosplay. Think triangle hats with feathers. One guy playing the role of founding father and declaration signer, Button Gwinnett, is literally holding a musket.

Today, rhino hunting season opens. The Tea Party had won a lot of seats, partly by promising to not raise the debt limit. And Tea Party activist slash Revolutionary War guy Button was like, listen, newly elected representatives, we are going to hold you to that promise. If you vote to raise the debt ceiling, you get a zero for the year from the Tea Party.

If you don't vote to raise the debt ceiling, you score 100 and you're a hero. You're a zero or a hero.

Jay Powell saw that there was a bunch of bad information going around around the debt ceiling and decided, maybe I can make a difference here. People need to know what the debt ceiling actually is and what blowing through it would actually mean. And so he started strategizing with Shai. Jay realized that the Republican side did not have faith that the Obama administration's Treasury Department

was giving them reliable information. Oh, that's interesting. So Treasury is in the executive branch, and so they are sort of beholden to the president. Yeah.

Yeah, so right or wrong, they were viewed as potentially not an objective source as to the fundamentals of the debt limit and what they were asking Congress to do. Both sides couldn't agree on even this fundamental piece of information, when the U.S. government was going to run out of money. Treasury was putting out an estimated date, but Republicans figured...

Of course they'd lie to us about the timing. They're bluffing. They want us to make a deal before we have to. Jay Powell and Chai realized that to build trust in this highly political moment, there needed to be an independent auditor, a third party on all this debt ceiling information. Someone Republicans would trust. Someone like Powell, who was a Republican and had worked at Treasury. So their first task was...

phase one of their new mission, figuring out that date, the date when the U.S. would run out of money, what they called the X date. Were there like other names that you guys batted around or was that literally the first shot?

No, I think that was the first shot. What we had been using before that point was just describing it in many words, which is much less artful and hard to convey. The date upon which the federal government will no longer be able to meet all of its obligations. For me, the X state name is just so clever. It's like X, the crossing point. And also X, do not enter. And also X, beyond here is variable. It's unknown.

It's like a triple entendre. Uh-huh. But the task of trying to figure out that X date? Not so easy. Think about how many ways the government makes money. The Department of Interior sells oil and gas leases. The FCC auctions off airwaves. And then, the biggest portion of government revenue, the IRS takes our money in taxes.

And tax revenue is unpredictable. The Treasury Department doesn't know when you're going to pay your taxes or when I'm going to pay my taxes. And those are payments that factor into the X date. Obviously, multiply that by millions and you get the uncertainty that we have in the projections.

There's even uncertainty month to month. Shai says people who are likely to get a tax refund often file early in February and March. So those months can be bad for the government's coffers. But April, when most of us pay our taxes, tends to be good for Treasury's balance sheet. And that's just the revenue side. Of course, the U.S. government also has bills to pay.

This is going to sound stupid, but I always kind of assumed that people just sent like invoices to the government. Like, you know, please pay for these missiles that you bought within 60 days or whatever. But it doesn't sound like the government works like that. Well, it does for many of its programs. And that's what causes a lot of the uncertainty that goes into our model. But Shai says if you are a keen observer, there is a document that can help you start to recognize patterns in government spending.

It's called the Daily Treasury Statement. Do you get that in your inbox every morning? I don't, but I have it bookmarked on my internet browsers. It comes out, I believe, at 4 o'clock every afternoon, if I remember the time. Do you look at it at 4 or 1 every day? I usually do. Shai and Jay Powell look at months of these, trying to map out payments. All right. Looks like we pay something like $1 or $2 billion to military contractors daily. Okay, got that.

And it seems like on the third of the month, that's when the big Social Security payment goes out. That's $23 billion. Type that in. There's a lot of data entry involved. We often get help from our interns on that. Shout out to the interns. Thank you. I've been an intern, and I know how much work that can be. And what does it look like? Is it like a Google calendar? Like...

$30 billion VA health care bill due in 10 minutes. Did you get the ping on your phone? It's close. It's an Excel spreadsheet. So, you know, it is a very complicated Excel spreadsheet. Shai and Jay Powell ran their model, checked it twice, and got the X date, the day the U.S. could run out of money to pay its bills. Deadline for 2011, drumroll please, 2011.

August 2nd. The clock was ticking. It was now time for phase two of Cheyenne J's debt ceiling adventure. It was late June, and so they had just 35 days to convince lawmakers that the X date was serious and that they needed to act now. How did these two government outsiders do their convincing? Did they whine and die in the politicians, corner them on the 18th green of the Chevy Chase Country Club, buy them tickets to the National Symphony?

Nah, they drafted up a PowerPoint. PowerPoint power rankings. You and Jay Powell. Who wins? I'm not sure either of us are PowerPoint masters. My skills are competent, but I certainly would not put myself in the Jedi category. They put the finishing touches on their PowerPoint, print

printed it out in color, and headed to Capitol Hill. So our first meeting on the Hill was with a staff assistant. Staff assistant. Does that mean like it's the intern or just above the intern? Is that what that means? Yeah, just above the intern. That's basically what it means. This staffer didn't have an office, so they sat down in the waiting area, pulled out those color printouts of their PowerPoint, and patiently explained.

here's what the debt ceiling is, here's why your boss's boss's boss shouldn't blow past it, and if they do, here's what might happen. Their presentation was impressive. Soon they got meetings with important staffers, then actual members of Congress, including Tea Party types. Shai says it was actually those meetings that were the most interesting because of the questions they would ask. Why do we have to act? Couldn't we do this? Or couldn't we do that? Or couldn't we just go over the cliff and see what happens? And Jay Powell and Shai would tell them...

Truth is, no one knows exactly what's going to happen when we go off that cliff. Beyond the X-State is a grave unknown. We've never been there before in the modern history of our country, and we just don't know what some of the reactions to that action would be.

So what are the markets going to do? What are interest rates going to do? What would the economy do? What would credit rating agencies do? Those are all open-ended questions. They would tell the politicians, remember the government shutdowns where Congress doesn't pass a spending bill and a bunch of federal employees are mad because they're not getting paid?

This is way worse. Way worse. Way worse. The market for U.S. debt is basically the foundation for all other financial markets. So going off the cliff would make it more expensive for everyone to borrow money.

Worst case, a drop in financial markets, downgrades to our credit rating, the dollar's dominance in the world might be threatened. And all for what? For a few extra days of negotiation? Not worth it. And when lawmakers would say, isn't there some secret plan or new magic money that Treasury could create to avoid catastrophe after we go off the cliff? Shai and Jay Powell would say, well...

Let's think that through. So one idea that was floating around at the time was couldn't the United States government print script? So basically an alternative currency like IOUs that we would hand out to people instead of actual money. And we would just go on like this for a period of time until the debt limit situation resolved itself.

And Jay had to talk through this and explain what some of the ramifications to that could be. You know, I would argue that that would make us look closer to a banana republic than the preeminent leader of the global economy. But it was an idea that was on the table at the time and one that needed to be talked through. To get the message out about the debt ceiling, Jay Powell and Shai would talk to anyone who would listen.

We're back with Jay Powell. He is a visiting scholar at the Bipartisan Policy Center, out with new analysis that you authored. Including taking questions from random callers on C-SPAN. Let's move on to Dalton on our Democrats line in Benton, Kentucky. Hi, Dalton. I have a question for Mr. Powell. Go right ahead. What will happen to America if they do not raise the debt ceiling?

So if the debt ceiling is not raised, then we will immediately, relatively immediately, within a few days, find ourselves unable to pay about half of our non-debt related bills. Non-debt related bills. Before I worked on the show, I figured that if the U.S. went off that debt cliff, we would start to default on our debt immediately.

But as Jay Powell pointed out, that would be so globally catastrophic that, in fact, Treasury would likely do everything possible to avoid defaulting. Right. So instead, Jay Powell said the Treasury secretary would have to make really hard decisions. You can protect all of the safety net payments. You know, these are the poor, the sick and the elderly that get payments, Medicare, Medicaid, Social Security, food stamps, that kind. You can protect all of that. But if you do, you haven't got a dollar left to pay for defense, not even for the troops.

and you can't operate the Justice Department, so you open the prisons and let everybody go, that's not going to happen. His point was, that would be such an impossible situation. Let's just not go there. We can't go there. The peak of their efforts came on July 15th, two weeks before their projected X date of August 2nd. Jay Powell had been invited to speak in front of the entire Republican caucus at a closed-door meeting. Chai was not invited, but when Jay Powell came back, whoo, did he...

Did he have some stories to tell? I was told there was some yelling. I was told there may have been some expletives. Shai says this is the moment Republican leadership got enough of their party on board with the plan that they would eventually negotiate with the White House. Ultimately, this meeting was the beginning of the resolution. When was the deal struck? Do you remember how close to that August 2nd X date? I believe the deal passed on August 2nd.

So it was a last-minute deal. Congress...

really only tends to act when they have their backs up against the wall. Seriously? I thought journalists liked deadlines, but wow! Congress really likes deadlines. The U.S. didn't stop paying its bills, didn't default on any debt. But four days later, the country's credit rating was downgraded for the first time in history. President Obama vowed never to negotiate about the debt ceiling again. That is what happened back in 2011.

Now, let's sit for a minute in 2023 during that fight over the debt ceiling. Jay Powell, he doesn't do X state predictions anymore. He was promoted, you know, went to work for the Federal Reserve and then was promoted to Fed chair. So now it's Shai's job to make the rounds on Capitol Hill.

He's the guy going on C-SPAN to field calls from worried Americans. President Joe Biden is in the White House. Republicans control Congress. Democrats hold a sliver of a majority in the Senate. And things are getting a little weird. There's more political discord even within the parties. And it leads to a very difficult situation because negotiations are best held when there is a clear picture on one side of what they're calling for and a clear picture on the other side.

It sounds like you have a lot of work cut out for you. Yes. The posturing in Washington, D.C. is getting intense. People are already throwing around some galaxy brain ideas on how to avoid catastrophe. And so we asked Shai to catch us up.

What's already happened, what's being proposed, and what it all means. Now, technically, the U.S. had already hit the debt ceiling in January of 2023. That was when Treasury Secretary Janet Yellen told Congress that the U.S. had run out of money and that they needed to come to an agreement quickly. But...

She told them, you do have a little time to figure out the details that she's going to pull out some old tricks to forestall a crisis. Some tricks with a kind of cool name. The Extraordinary Measures? Yes. How did they come up with that term?

So originally, the extraordinary measures were quite extraordinary in that you wouldn't think to use them in anything other than a debt limit scenario where Congress needed to buy more time. Does that mean they don't make sense in the normal logic of government governing? No, they make sense to almost nobody who I discuss it with. And that puts an extra onus on us to try to explain them in simple terms.

Let's do it. Extraordinary measures explained in simple terms. They're basically just accounting tricks that allow the government to keep spending money by freeing up some space under the debt limit. One of these tricks, for example, say you work for NASA. You have a government retirement account. Part of your retirement is an investment in government bonds.

And when the debt ceiling gets close, Treasury can basically say, hey, let's pretend that we don't owe that money to you in the future so we can use that money to pay for other things right now, like your paycheck. Once the debt limit situation is over, everything goes back to normal. Accounting gimmicks go away. But it's really just this built-in cushion for Congress's delay. Are they just gimmicks?

They are necessary gimmicks. They're the only thing that is standing in the way between where we are right now and us defaulting on our obligations. But yes, they're effectively gimmicks. They are accounting maneuvers that are permissible by law.

In the past, the extraordinary measures have bought several months of negotiation time. And if the past is any guide, politicians will keep negotiating right down to the wire. And so there is another category of new, never-been-done-before tricks people are proposing. One you might have heard of is this idea of a trillion-dollar coin. That, in case of emergency, Treasury can just mint and maybe, big

Big if here. Deposit at the Federal Reserve. Boom. One trillion more dollars on the books. That never took off. Another has to do with so-called premium bonds, which would let the government borrow more money. But it would look like they were staying under the debt limit, at least to accountants. On a scale of 1 to 10, 1 being serious policymaking, 10 being a gimmick, where do you put the trillion dollar coin?

It's got to be somewhere up there near a 10. Okay, premium bonds. Yeah, I'm going to list almost all of these up near the 10 range. Maybe even at the 11 because they're all falling in the category of unprecedented actions by the Treasury Department that are going to be viewed as a bailout for Congress failing to do its job. Are they more gimmicky than the gimmicks we already have? They're not, but everybody is accustomed to the gimmicks that we already have.

And they I would argue that that those are baked into the cake. There are a few gimmicks that aren't baked into the cake yet. One is so simple that it doesn't seem like a gimmick. The U.S. could just keep borrowing money. Treasury could pretend like there is no debt ceiling. Just blow right past it. There is a legal argument to justify this. It comes from the 14th Amendment, which says, quote, the validity of the public debt shall not be questioned.

Does that mean that Treasury can just ignore the debt ceiling? Shia says, who knows? That would likely be subject to a challenge in the courts and could cause large financial market repercussions while that whole situation is unfolding, not to mention political fallout, if Treasury were to take that approach. If Treasury does this, if they keep lending out money, that debt is probably going to be challenged in court as unlawful.

Instead of being the safest investment in the world, a U.S. Treasury bond would become kind of unsafe, kind of junky. And who would buy those now junky government bonds? Well, there's this idea that maybe current Fed Chair Jay Powell would. And to be clear, this has never happened. This is not how the Federal Reserve is supposed to work.

But in theory, the Fed could buy up that debt, keep the government running smoothly. Has Chairman Powell, to me, Jay, to you, said anything about this? All he has said is that the Fed has no role in this debate.

And it is up to Congress and the administration to take action and hold whatever negotiations they will. I am comforted by the fact that Jay is very familiar with this issue and having somebody at the Fed in a worst case scenario who understands it and the various dynamics, both economic and political, is

could be important, but hopefully we will never get to that point. He thought he foisted all this debt ceiling stuff on you, but it's coming back to haunt him year after year. Exactly. Much to his chagrin, I know. One thing Shai pointed out in 2023 was how the government could be having more meaningful debates around the country's debt and deficits when Congress is making decisions about how much to spend, how much to tax.

solve it without an X date in sight. The system that we have makes very little sense. Nobody would start from scratch and come up with the political football of the debt limit that we have today. That was 2023. After the break, what is going on with the debt ceiling right now in 2025? And when is the new X date?

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So that was 2023. And now in 2025, the X date is again looming. Shai Akavis is now a vice president at the Bipartisan Policy Center. He and his colleagues are still pulling data from the CBO's economic forecast, still working out of a hyper-complicated Excel sheet, still trying to figure out when exactly the X date is.

Our model is running roughly the same way it always has, but there's, of course, new dynamics each time around. This time, new policy twists like tariffs. What kind of revenue does that bring in? And there's Doge. Will that slow down the pace of spending?

But what's really different this time, he says, is that big bill Republicans are advancing through Congress. It includes proposals that mount into the trillions of dollars on both the spending and the tax side of the equation.

He explained all this to our producer James Sneed. The debt limit as of now is tucked into that legislation as a $4 or $5 trillion increase. But we don't know what its fate will be until we see how this package proceeds through the legislative process over the coming weeks. So in the interim, what's the thinking on this? How worried are you, I guess?

Well, it's not often that the debt limit is tucked into some other major legislative debate. Usually those discussions take weeks, if not months. We could be finding ourselves in a matter of days with needing to extend the debt limit and no clear path to do so. So I guess I'll just ask again, how worried are you?

I'm concerned, as I always am when we come up against the debt limit, that policymakers are going to fail to act in time. The Moody's rating agency downgraded the U.S.'s top credit rating in May. That's following Fitch and S&P, which downgraded the U.S. in 2023 and 2011, respectively. Basically, just one more signal telling the U.S. that

this is not a good path to go down. The ratings downgrades have a number of causes. One is the brinksmanship that we see time and again over the debt limit. They're also increasingly worried about our debt trajectory, the growing size of the federal debt. And there's no sign of the political will to do anything about it, which is the most troubling part. So what does his spreadsheet say now? It kind of depends.

But... The X date will most likely be sometime between August and early October. But this period of time is fast approaching. And with Congress due for its August recess, that leaves a limited amount of time to solve this. The stakes are huge. So, in a sense, we are still here, waiting for the same things as before. Our elected leaders have shown little willingness to put fiscal responsibility as a top priority...

And that's what we really need. We need to get our fiscal house in order, and that's going to mean difficult decisions on the spending programs we have and on the amount of taxes that Americans are asked to pay.

Nobody wants to go back to their constituents and tell them that their benefits are getting cut or their taxes are going up. But those are the types of hard choices that are ahead of us. And we need our elected leaders to come together and put together a plan. Otherwise, we're going to keep dragging down our economic growth slowly but surely. And those problems could eventually come to a head in a way that is much more painful for households and businesses across the country.

We've got a couple more episodes coming up related to this. Like, could our economy just grow so much it outgrows the national debt and solves the problem that way? Or how do we know when the debt itself is so big it's hurting the economy? Those are some questions we will tackle over the next few weeks. We are also going to take a trip to a big crypto conference and we are going to wade into the world of bribery.

The original episode was produced by Sam Yellow Horse Kessler with help from Melissa John Perry. And it was engineered by Josh Newell and fact-checked by Sierra Juarez. It was edited by Jess Jiang. This update was produced by James Sneed, engineered by Jimmy Keeley, and it was edited by our executive producer, Alex Goldmark. Special thanks to Ron Elving, NPR politics editor and walking encyclopedia of political knowledge. I'm Nick Fountain. And I'm Amanda Aranchik. This is NPR. Thanks for listening.