Last week, within approximately 48 hours, it seemed that the debt ceiling dispute for 2025 could be avoided, as there were proposals to postpone the issue to 2027 or 2029 (or even indefinitely), but that is not the case.

The Democrats and about 30 of the most conservative Republicans reached a consensus and rejected a proposal that included a plan to extend the debt ceiling. Although Congress passed a bill late last Friday local time to avoid a government shutdown, the debt ceiling issue remains unresolved.

Now, the possibility of the USA government defaulting in 2025 still exists, and the next default may occur on January 1 next year. According to an agreement reached in 2023 between USA President Biden and then-House Speaker Kevin McCarthy, the temporary suspension of the debt ceiling will end, and the restrictions on the USA government's borrowing authority will be restored.

At that time, the debt ceiling will be reached, but the Treasury can postpone the default for several months through a procedure called "extraordinary measures," which allows the department to mobilize funds from various government Accounts to delay the actual default. However, this can only last for a very short time.

USA Treasury Secretary Yellen wrote during the last debt ceiling standoff in 2023 that, "Due to various factors, there is considerable uncertainty regarding how long extraordinary measures may last."

Overall consideration suggests that the government default issue may again impact the USA economy in early 2025. Here are some early thoughts on how the next round of games might unfold.

The unpredictable path of borrowing authority.

Events that occur after January 1st next year are essentially guesses about the exhaustion of these extraordinary measures and the moments when actual defaults may occur. The Treasury has traditionally provided very limited estimates for possible "X days," leaving it to others to weigh.

An analysis report written by two former Republican congressional staffers suggests that mid-June next year may be a key moment to watch.

However, the report quickly added, "The debt ceiling could very well be reached before June 16, and Congress may need to act earlier than many expect."

The Bipartisan Policy Center (BPC) has also done extensive work to predict the possible range of X days. Although the BPC has not released an official analysis report for 2025, the center's economic policy director Rachel Snyderman reminded that it is difficult to predict how long the Treasury's measures can push default down the line.

Snyderman explained, "Extraordinary measures may push default further into 2025, but the length of this period is currently unclear for several reasons," citing next year's tax season and the unpredictability of government spending.

In any case, House Speaker Johnson's statement that next year the debt ceiling will be raised by $1.5 trillion through reconciliation, but only if there is a simultaneous reduction of $2.5 trillion in "net mandatory spending," could complicate next year's deadlock.

Action plan on Capitol Hill.

As this fiscal guessing game unfolds, predictions about the X day may become even more elusive, leaving traders feeling anxious.

Republican lawmakers and the new Trump administration will seek solutions, but it must be clear: this is not the situation Trump wants. Last week, he called the debt ceiling a "disgusting trap set by radical left Democrats," adding, "When it comes to a vote, they try to embarrass us."

In 2025, the fate of the debt ceiling will be almost entirely in the hands of the Republicans controlling the White House, Senate, and House.

This is especially true as Johnson has committed to increasing the budget through reconciliation, a process that has become extremely partisan in recent years because it allows the Senate to pass bills with 51 votes, entirely excluding the minority party.

The problem Trump faces in the House is that a large group of hardline Republicans have never voted to support any form of debt ceiling increase and have shown no willingness to do so.

As self-proclaimed fiscal conservative Congressman Eric Burlison from Missouri said in a recent video, "Unless serious consideration is given to cutting spending, I will not participate in this sleight of hand of continuing to raise the debt ceiling."

At least twenty House Republicans are taking the same approach, and given the narrow Republican majority, this is enough to undermine any agreement.

If the already controversial debt ceiling increase is combined with changes to programs like Medicaid, Medicare, or Social Security, then Johnson's plan to tie the debt ceiling to proposed cuts to so-called "mandatory spending" could create another "political minefield."

Editor/Rocky