Translated from TBAC's report to the U.S. Treasury Department:
P1 Homepage Overview
"Since 1960, Congress has taken action 78 times to raise or suspend the statutory debt ceiling. Concerns about the debt ceiling—and the process involved in raising or suspending it—have increased the Treasury's borrowing costs, disrupted financial markets, and led to a downgrade of the U.S. sovereign credit rating. In December 2024, the Government Accountability Office (GAO) issued a report highlighting the serious consequences of a potential default and reiterated three options for improving the debt ceiling process:
(1) Linking the debt ceiling to the budget process;
(2) Granting government management the authority to raise the debt ceiling with a motion of objection from Congress;
(3) Repealing the debt ceiling would allow the Treasury to borrow as much as necessary to pay for its spending as authorized by law.
We would like the Committee to comment on the impact of the debt ceiling (and the related process of raising or suspending it) on financial markets. In the meantime, please consider the options GAO has proposed and their potential benefits and costs.
P2 Summary
➢ The current debt ceiling policy has had a number of negative effects on the global financial system.
➢ The debt ceiling has not served as an effective constraint on the nation's debt levels; in fact, it has often been used as a political bargaining chip in recent years.
➢ Negative effects on the financial system include: higher debt servicing costs, credit rating downgrades, increased risk of technical defaults, financial market disruptions, and lost productivity.
➢ Some degree of reform of current practices must be accompanied by a commitment to sustainable fiscal outlooks and governance mechanisms.
➢ Markets are likely to welcome reforms that reduce the risk of political brinkmanship while maintaining some oversight over the nation’s debt levels.
P3-P6 Review of the Current Debt Ceiling Process
➢ The debt ceiling is the total amount the U.S. government is authorized to borrow to meet existing legal obligations.
➢ The debt ceiling applies to gross debt as reported, not just net debt held by the public.
➢ As of March 2025, intragovernmental debt is estimated at $7.2 trillion (20% of total debt).
➢ Congress sets the debt ceiling through a process that is independent of spending decisions; it only limits the Treasury’s ability to borrow and execute spending decisions.
➢ In theory, the debt ceiling should promote fiscal responsibility; in practice, it has recently been used more as a bargaining chip, also related to increased political polarization.
➢ This situation may increase costs for taxpayers.
Left Block: If Congress fails to raise or suspend the debt ceiling,
Middle Block: For example, the Treasury will use the Treasury Cash Account (TGA), adjust investments (such as CSRDF, G Fund, ESF),
Right Block: The government will face the risk of running out of funds and default.
Although the debt ceiling itself has been used as a political tool, it is sometimes tied to the budget appropriations process, which increases the complexity and interaction associated with the government shutdown.
➢ The Government Accountability Office (GAO) reviewed recent debt ceiling deadlocks, showing how long the deadlock lasted and how close the estimated "deadline" (x-date) was, many of which were very close.
➢ Missing the estimated “deadline” is detrimental to market functioning and could increase costs to taxpayers.
➢ Historically, the debt ceiling has always been temporarily raised or suspended
➢ As a percentage of GDP, it fell to a low of 30% in the 1980s and is now at 132%.
The following chart shows the absolute amount of the debt ceiling since 1945 (in trillions of dollars), and the other shows the debt ceiling as a percentage of GDP. The blank areas in the chart represent past debt ceiling suspensions passed by Congress.
Left: US debt ceiling (trillion US dollars)
Horizontal axis: Year (from 1945 to 2025)
Blank area: indicates that during the suspension period, the debt ceiling has not set a specific value.
Right chart: US debt ceiling as a percentage of GDP
Horizontal axis: Year
Vertical axis: debt ceiling as a percentage of GDP
The blank area in the chart also indicates the period when the debt ceiling was temporarily suspended.
P7 Negative Impact of the Current Debt Ceiling Process
Negative Impact of the Current Debt Ceiling Approach
➢ We observe several negative effects of the current debt ceiling strategy:
1. Increased volatility in Treasury cash account balances, bond yields, and short-term Treasury bond issuances
2. Increased debt servicing costs
3. Negative impact on the U.S. credit rating
4. Adverse impact on the U.S.’s status as a reserve asset
5. Increased technical default risk 6. Waste of public and private sector resources P8 Impact #1: Increased volatility in Treasury accounts and short-term debt issuance ➢ Large changes in the Treasury account (TGA) will cause fluctuations in reserve balances, thereby changing market liquidity conditions. ➢ Concerns about the 2025 debt ceiling dispute may prompt the Federal Reserve to slow quantitative tightening (QT) earlier than expected to avoid potential market funding disruptions caused by "recharging" the TGA. ➢ Increased volatility in short-term debt issuance may make the supply and demand relationship of government money market funds (which hold about 40% of short-term debt) more unstable. Overnight reverse repurchase (RRP) has become a tool to help reduce risks.
Left figure: TGA and reserve changes
Changes in TGA balance and changes in reserves and total reverse repurchases. The shaded area in the figure corresponds to the data during the debt ceiling deadlock.
Right: Chart of short-term debt holdings and proportions of money funds
P9 Continued
➢ The uncertainty of the Treasury’s cash balance increases the Treasury’s operational risk.
➢ The recent debt ceiling deadlock has caused the actual Treasury cash account balance to be lower than the established policy target.
➢ If there is an unexpected cash demand (such as a natural disaster or disruption of market access), this decline will further increase the Treasury’s operational risk.
P10 Impact #2: Rising debt servicing costs
➢ An analysis of the debt ceiling standoffs in 2011 and 2013 showed that those standoffs likely increased borrowing costs by about $500 billion, according to a 2017 Federal Reserve study.
➢ Given that outstanding debt has more than tripled to about $16 trillion, the cost increase is likely much greater than previously estimated.
➢ The study not only observed a significant impact on short-term bond yields, but also estimated the impact on coupon Treasury bond rates.
P11 Impact #3: Negative impact on US credit rating
➢ In 2011, Standard & Poor's (S&P) downgraded the U.S. government's credit rating for the first time from AAA to AA+, a downgrade that was partly due to political brinkmanship: "Political brinkmanship in recent months has highlighted our concerns that governance and policymaking in the United States are increasingly unstable, ineffective, and unpredictable. The statutory debt ceiling and the threat of default have become political bargaining chips in the fiscal policy debate. Despite extensive debate this year, the differences between the two parties proved difficult to bridge, and the agreement reached fell far short of the comprehensive fiscal cleanup envisioned by some advocates. Congress achieved only limited savings on individual discretionary spending, while leaving some decisions to select committees. At the same time, new sources of revenue fell significantly among policy options. The plan only slightly adjusted Medicare and made few changes to other key social security programs, which are key to ensuring long-term fiscal sustainability. ”
➢ Recently, in August 2023, Fitch downgraded the US government’s credit rating from AAA to AA+. One of the reasons cited in the report was “deteriorating governance” – that is, the continuous deterioration in the US’s fiscal and debt management standards over the past 20 years, which has weakened the market’s confidence in the US’s governance capabilities.
“Erosion of governance: In Fitch’s view, governance standards (including fiscal and debt issues) have been steadily deteriorating over the past 20 years, even with the bipartisan agreement reached in June to suspend the debt ceiling until January 2025. Recurring political deadlocks over the debt ceiling and last-minute emergency decision-making have eroded confidence in fiscal management. In addition, the government’s lack of a medium-term fiscal framework, unlike most of its peers, and its complex budget process have also exacerbated the problem. These factors, combined with several economic shocks, tax cuts, and new spending plans, have led to a continuous increase in debt levels over the past decade. In addition, progress has been limited in addressing the medium-term challenge of rising Social Security and Medicare costs due to an aging population.”
P12 Impact #4: Negative Impact on U.S. Reserve Status
➢ Further credit rating downgrades or concerns about technical defaults could adversely affect the status of U.S. Treasuries as a safe and reserve asset, causing foreign buyers to reduce purchases and turn to other reserve assets (such as gold or foreign government bonds).
➢ If market participants begin to question foreign demand for U.S. Treasuries and foreign investors further reduce their holdings, this could further push up term premiums and increase debt servicing costs.
Left: US dollar foreign reserves stopped growing after 2018
Middle: Gold prices rose (or due to reserve diversification)
Right: Rising term premium
P13 Impact #5: Increased risk of technical default
➢ A large number of studies have explored the risk of technical default in detail. The GAO report provides a relatively detailed description of this issue and lists many risk points, including but not limited to:
1. “Operational complexity may make default difficult to avoid.”
• Even if the debt ceiling can be raised at the last minute in an emergency, operational complexity may still make default difficult to avoid completely.
2. “There are risks with default contingency plans designed to ensure market functioning.”
• Related to the discussion in the TMPG white paper,
• Including measures such as extending the maturity date of operations and prioritizing principal and interest payments.
3. “Default could cause serious harm to financial markets and financial institutions.”
• Could disrupt short-term funding markets and spread to other markets,
• And increase the risk of bank runs.
4. “Default could limit the tools available to protect bank deposits and prevent runs.”
5. “Default could reduce lending to households and businesses.”
6. “Default could trigger a deep and prolonged recession in the U.S. economy…”
P14 Impact #6: Waste of public and private sector resources
➢ Every debt ceiling impasse requires a significant amount of time and effort to analyze, much of which could have been avoided and redirected to more productive tasks.
1. Major banks need to conduct various stress tests for the debt ceiling deadlock, which involves a lot of time and human resources,
• Affects liquidity indicators, margin requirements, and the review of hundreds of credit support agreements;
• It also puts pressure on the central counterparty (CCP) margin, discount window qualifications and repurchase facilities.
2. Banks and other investors tend to sell securities that mature before x date and may be affected by technical default,
• in order to shift funds into alternative assets such as foreign government bonds;
• and separately exclude affected securities in margin agreements.
3. A lot of research is needed to estimate extraordinary measures, x-dates and operational contingency plans,
• For example, the 2021 TMPG white paper on contingency plans for treasury payments,
• and analysis of the complexity of contingency arrangements in payment systems and settlement processes.
P15 Cover page: Analysis of the debt ceiling alternatives proposed by GAO
P16 Analysis of the GAO alternative debt ceiling plan left;">➢ The GAO report reiterated three options for improving the debt ceiling process (as follows):
1. Linking adjustments to the debt ceiling to budget resolutions.
2. Giving government agencies the power to raise the debt ceiling subject to congressional objections.
3. Authorizing government agencies to have broad borrowing powers to finance in accordance with laws passed by Congress and the President.
➢ In addition, we note that GAO also released a report on "The Effective Use of Fiscal Rules and Targets" in 2020, and recommended that these rules be incorporated into budget decisions in order to provide a more effective constraint mechanism.
Congress should consider establishing a long-term fiscal plan that includes fiscal rules and targets, such as debt-to-GDP ratio targets. In doing so, Congress should weigh the key considerations discussed in this report to help ensure that these rules and targets are appropriately designed, implemented, and enforced.
P17 Who Holds U.S. Treasuries?
➢ Marginal buyers of Treasuries are becoming more concerned about price sensitivity. When assessing the impact of debt ceiling reform, it is more important to focus on the structure of investors in U.S. Treasuries and their likely reactions rather than just looking at the holdings.
➢ Investors who are more sensitive to technical default risk, such as money market funds and banks, may tend to support reform measures.
➢ Overall, market investors are more likely to welcome measures that reduce the risk of rating downgrades and improve governance processes.
➢ However, some investor groups (such as foreign official holders or US households) may be sensitive to the removal of this measure, which is seen as a fiscal bumper, which may have an impact on the term premium.
Overseas holdings of U.S. debt
Country and investor type of U.S. debt investors
Maturity of overseas U.S. debt holdings
P18 Perceived Risk: Fiscal Responsibility
➢ We also note that the timing of debt ceiling reform is very critical. In the current economic environment, markets are extremely sensitive to any move that is perceived as easing fiscal discipline.
➢ U.S. publicly held debt as a percentage of GDP is currently around 100%, and is expected to rise to 119% by 2035.
➢ In practice, the debt ceiling has not effectively constrained fiscal spending; therefore, while repealing the debt ceiling would eliminate many known negative effects, it would also raise concerns about fiscal responsibility.
➢ In the long run, any repeal would be best combined with a credible deficit reduction and spending control plan to stabilize market confidence.
➢ Non-defense discretionary spending accounts for only 14% of income and is expected to fall to 12% by 2035. Cuts in other categories of spending or adjustments to tax policy may need to be considered.
Left: Recent CBO budget estimates, Right: Non-defense discretionary spending as a percentage of total spending
➢ Impact on the Debt Ceiling Process:
➢ Limited improvement. Direct linkage to the budget process means that the Treasury Department can ensure that the funds required for any spending law are borrowed, thereby reducing the possibility that Congress can use the debt ceiling as a bargaining chip.
➢ Special consideration needs to be given to how to deal with non-annual appropriations, such as debt interest, cost of living adjustments (COLA) for Social Security payments, etc.
➢ Otherwise, a debt ceiling deadlock is still likely.
➢ According to the data, borrowing exceeded the Treasury's initial estimate by an average of about $74 billion in the three quarters of 2022, 2023 and 2024, and cumulatively exceeded the estimate by about $1 trillion.
➢ Impact on the outside world's perception of fiscal responsibility:
➢ The impact is limited because the debt ceiling remains in place, but is tied to the spending process, and Congress retains control over it.
➢ Impact on markets and investors:
➢ Reform will have a modest positive effect and is expected to reduce the frequency of deadlocks.
P20 Alternative 2: Give government management the power to raise the debt ceiling if Congress raises an objection motion
➢ Impact on the debt ceiling process:
➢ The improvement is significant and can greatly reduce the phenomenon of Congress using the debt ceiling as a bargaining chip.
➢ Congress can check this power by raising an objection motion, but this motion must be supported by a majority in the Senate and the House of Representatives respectively; even so, the president has the veto power, and overturning the veto requires a two-thirds majority vote in the Senate and the House of Representatives, so it is more difficult.
➢ Impact on the perception of fiscal responsibility:
➢ It may be seen by some as weakening the existing fiscal firewall, but the theoretical mechanism of opposing motions provides a check and balance for this.
➢ Impact on the market and investors:
➢ The overall market effect tends to be positive due to the significant reduction in the possibility of debt deadlock; but at the same time, some investors may worry about the weakening of fiscal control, which may bring a moderate negative perception.
➢ In particular, it will support the demand for short-term government bonds by money market funds and banks.
P21 Alternative 3: Delegating broad borrowing authority to government agencies to finance under laws passed by Congress and the President
➢ Impact on the debt ceiling process:
➢ Essentially equivalent to abolishing the debt ceiling, fundamentally eliminating political deadlock and default risks.
➢ Impact on the perception of fiscal responsibility:
➢ This is the riskiest option of the three options because it may be seen by the outside world as relaxing fiscal constraints and controls.
➢ Impact on markets and investors:
➢ Overall, the elimination of deadlock risk will have a positive effect; but at the same time, the plan may bring some uncertainty in perception as some investors are concerned about the fiscal risks that may arise from unlimited spending.
➢ The positive impact on short-end government bond demand (such as money market funds and banks) may be significant, but it needs to be balanced with concerns about fiscal discipline.
P22 Case Study: Australia
➢ In 2013, in order to improve fiscal transparency, Australia lifted its debt ceiling when its debt exceeded a certain threshold (US$50 billion).
➢ Although no rigorous comparative studies have been conducted, data show that bond yields and term premiums fell after the debt ceiling was lifted.
➢ However, it is important to note the following three significant differences from the United States:
1. Australia's debt/GDP ratio was only 30% at the time, far lower than the US level;
2. Australian government bonds do not have the status of international reserve assets (lower importance);
3. The size of the Australian government bond market is much smaller than that of the United States.
Left: Australia's debt/GDP ratio was very low in 2013
Right: Yields and term premiums have fallen since then
P23 Summary
➢ The current debt ceiling approach has had multiple negative effects on the global financial system and may increase tax costs.
➢ In reality, the debt ceiling has not curbed spending; lifting the debt ceiling would reduce multiple known negative effects, but in the current economic environment, it would increase market perceptions of fiscal responsibility.
➢ It would be better if Congress decided to repeal the debt ceiling while introducing a system around fiscal rules and targets (as described in the 2020 GAO report).
➢ Other considerations for future analysis include:
• Whether the debt ceiling should be quantified as a percentage of GDP;
• The debt ceiling should be adjusted upward as the economy grows;
• While such changes are not a panacea, they could lead to smoother funding management;
• There are also technical issues that need to be resolved (e.g., GDP data revision issues);
• Should the debt ceiling calculation be limited to debt that is publicly traded?
• Should debt held by the U.S. government (such as debt supporting Social Security liabilities) be excluded from the debt ceiling?
• When analyzing debt sustainability or economic conditions, most analysts focus primarily on “publicly held debt,” which excludes intragovernmental debt;
• In practice, this would also eliminate certain extraordinary measures involving temporary reductions in intragovernmental debt.
End of Article
US media said that under China's Bitcoin ban, cryptocurrency miners were driven out of China, and now they are draining the United States and consuming the country's huge energy.
MiyukiNubank, the largest digital bank in Brazil in which Buffett holds a stake, announced that it would stop trading its cryptocurrency Nucoin, and customers would have 90 days to exchange it for Bitcoin or USDC stablecoin.
WeiliangX Empire is introducing pre-market trading using custom NFT vouchers for its upcoming token, allowing players to trade these vouchers on the Getgems marketplace before the official token launch. The game offers complex gameplay and minting options, with NFT vouchers costing around $36 and a 20% royalty supporting token liquidity.
AnaisEuropean regulators are investigating Google's AI model, PaLM2, for potentially violating strict data privacy laws in the EU. Ireland's Data Protection Commission is focusing on whether Google properly assessed the risks of processing personal data with its AI.
WeatherlyOpenAI is seeking $11.5 billion in funding, aiming for a $150 billion valuation, with key investments from Thrive Capital, Microsoft, Apple, and Nvidia. This funding will support its growing AI operations and maintain its competitive edge in the rapidly evolving AI industry.p it competitive in a growing tech landscape.
AnaisDonald Trump’s digital trading cards have become a target for cybercriminals, who are using fake websites and phishing emails to steal personal and financial information.
WeatherlyFred Thiel, CEO of Marathon Digital, a U.S. cryptocurrency mining company, said that Bitcoin mining is a national security issue. Russia has mined 54,000 bitcoins under U.S. sanctions, and the Putin government has received huge tax revenue.
AlexThe British government has submitted a bill to Parliament hoping to classify cryptocurrency assets as a new form of property, which could generate £34 billion in revenue each year.
MiyukiCryptoQuant analysis shows that Bitcoin's trend is decoupled from gold, investors seem to favor gold, and cryptocurrencies continue to be in a bearish phase.
WeiliangPope Francis addressed Singapore’s leaders, urging the nation to use its global position for peace and unity. He emphasized that while technological advancements like AI should promote human connection, they should not lead to isolation or diminish genuine relationships.
Weatherly