In January 2023, debt accrued by the United States government reached its statutory limit, forcing the U.S. Treasury began taking “extraordinary measures” on January 19th. This “debt limit” is the “total amount of money that the United States government is authorized to borrow to meet its existing legal obligations, including Social Security and Medicare benefits, military salaries, interest on the national debt, tax refunds, and other payments.” The Treasury is now warning about the U.S. government defaulting on its legal obligations, leading to “catastrophic economic consequences.”
Below we’re comparing probabilities taken on the morning of March 15th from five different prediction markets about whether the U.S. increases its debt ceiling. These markets include:
- Kalshi, the first regulated exchange for event contracts.
- American Civics Exchange, the first commercial market for political futures.
- CSPI and the Salem Center’s forecasting tournament.
- Manifold Markets, a play-money prediction market platform where you can bet on anything.
- Metaculus, an online forecasting platform.
These markets primarily differ in two ways:
- The date on which the event does or does not happen.
- The way each market (even within the same platform) defines how the debt ceiling is raised, circumvented, suspended, etc.
| Platform | Date | Yes? | Terms |
| Kalshi | 6/9/2023 | 14% | “Raises or suspends the current federal debt ceiling” |
| Kalshi | 7/1/2023 | 32% | “Raises or suspends the current federal debt ceiling” |
| ACE | 7/31/2023 | 67% | “temporarily or permanently increasing or suspending the application of the federal debt limit” |
| Salem Center | 7/31/2023 | 65% | “raises the US debt limit” |
| Kalshi | 8/1/2023 | 58% | “Raises or suspends the current federal debt ceiling” |
| ACE | 9/30/2023 | 93% | “temporarily or permanently increasing or suspending the application of the federal debt limit” |
| Kalshi | 12/31/2023 | 93% | “Raises or suspends the current federal debt ceiling” |
| Manifold | 12/31/2023 | 95% | “Will the US debt ceiling be raised in 2023?” |
| Manifold | 12/31/2023 | 84% | “Will the US raise the debt ceiling before defaulting or circumventing the debt ceiling?” |
| Manifold | 12/31/2023 | 93% | “The statutory debt ceiling is raised?” |
| Metaculus | 12/31/2023 | 97% | “Will the statutory debt limit be increased or suspended for at least 30 days in the United States before 2024?” |
Unsurprisingly, the chances increase as time passes, with the markets confident (93-97%) that the limit will be increased in some way, shape, or form before the end of the calendar year. Kalshi traders (using real money) are less confident about a deal before August 1st than either investor on the American Civics Exchange (using real money, too) or traders on the Salem Center (using fake money).
Manifold traders (using fake money) see a debt ceiling deal in 2023 (93% and 95% likely) but they are less confident about it happening before the US defaults or circumvents the debt ceiling (84%).
Any concerns about defaulting by prediction markets do not seem to be shared by stock markets. Industries dependent on government spending, like defense and healthcare, took a hit during the 2011 debt ceiling crisis, but so far neither defense nor healthcare seems to be directly affected by the current crisis. Defense stocks dipped sharply in mid-January, but have generally recovered while stock prices for the top five public government healthcare contractors have varied since mid-January.
Below are the specific market rules.
Kalshi:
The Payout Criterion for the Contract encompasses the Expiration Values that contain documentation of a Bill that:
1. Achieved the status “Became Law” between Issuance and <date>. Note that “Became Law” does not mean that the bill has taken effect.
2. Raises or suspends the current federal debt ceiling as defined as the limit set by Section 3101(b) of Title 31 of the United States Code.
a. “Raises the current federal debt ceiling” is defined by the creation of any new debt limit greater than the amount set by law on the Issuance of the Contract. Future iterations of the contract may use different benchmarks of “current debt ceiling”. If so, the Exchange will indicate that new benchmark in the Rulebook and on the market page.
b. Bills that authorize an increase in the debt ceiling subject to some determination by the President are encompassed in the Payout Criterion.
c. Suspension of debt ceiling is defined as any action that suspends the application of Section 3101(b) of Title 31 of the United States Code for any positive length of time
Read the full contract.
American Civics Exchange:
Debt Ceiling Hike by 7/31 Rules
This contract will resolve as Yes if, on or before July 31, 2023 (ET) (“Expiration”) but not earlier than January 23, 2023, U.S. federal legislation is enacted with the effect of temporarily or permanently increasing or suspending the application of the federal debt limit set by 31 U.S. Code § 3101(b) (as compared with its provisions effective January 23, 2023), with an effective date no later than Expiration.
Enactment refers to presidential signature of bicamerally passed or deemed passed legislation, congressional override of a presidential veto, or other means by which qualifying federal legislation becomes law.
Salem Center:
This market will settle as YES if Congresses passes a bill that the president signs that raises the US debt limit by July 31, 2023. If the president vetoes the bill, and his veto is overturned on such a bill, the market will still settle YES.
Manifold: Will the US debt ceiling be raised in 2023?
Resolves YES if the US statutory debt ceiling is raised in 2023, otherwise NO.
Whether the US hits the debt ceiling or not does not matter for this market. E.g. if the US hits the debt ceiling and then it’s raised, that still counts as YES.
Removing the debt ceiling entirely to allow unlimited debt issuance (equivalent to raising it to infinity) would resolve YES.
Manifold: Will the US raise the debt ceiling before defaulting or circumventing the debt ceiling?
The US has already hit the debt ceiling in Jan 2023 and the Treasury department is using accounting maneuvers to keep paying the bills with so-called “extraordinary measures” (1), which are expected to run out in the summer. At that point, if no action has been taken, the US government will be unable to pay its bills, aka default. Or, the US government could potentially choose to deploy some “gimmick” to circumvent the debt ceiling and avoid default.
Will Congress raise the debt ceiling, or will the US government be forced to either default or deploy a “gimmick” to circumvent the debt ceiling?
- Resolves based on which of these happens first:
- Resolves YES if the US raises the debt ceiling
- Resolves NO if the US defaults on its debt
- Resovles NO if the US circumvents the debt ceiling, e.g. by “minting the coin”, issuing forms of debt that bypass the debt limit like premium or perpetual bonds, issuing illegal debt above the debt ceiling, declaring the debt ceiling unconstitutional, etc. See the markets below for a non-comprehensive list of examples that would qualify.
- The already ongoing “extraordinary measures” do not count because they are normal practice, and they only temporarily delay running out of funds due to the debt ceiling, they do not circumvent it.
(1) Extraordinary measures are things like temporarily replacing bonds in federal employee’s retirement accounts with IOUs (the bonds are put back with appropriate interest after the debt ceiling crisis is over). They were explicitly legalized by Congress after the 1985 debt ceiling crisis, and they stopped being extraordinary after we used them regularly for decades of past debt ceiling crises.
Manifold: “The statutory debt ceiling is raised?“
Matthew Yglesias is a liberal American blogger and journalist who writes about economics and politics. He publishes the Substack newsletter Slow Boring.
Recently he made many predictions on American politics events, published on https://www.slowboring.com/p/my-predictions-for-2023
Metaculus:
This resolves as Yes if, before January 1, 2024, the United States increases the statutory debt limit or suspends it for at least 30 days as the result of one piece of legislation according to credible sources. Any amount of increase qualifies, as does any suspension which lasts at least 30 days that was passed as part of one piece of legislation. The suspension must begin before January 1, 2024 to qualify, the end date of the suspension is irrelevant apart from the 30 day requirement.