The full faith and credit of the U.S. government will be in jeopardy next month...ish.
The looming debt ceiling means that – without an intervention by Congress – the government won’t be able to pay its bills soon. A default could be catastrophic for the U.S. economy. But what makes matters worse is that nobody is quite sure when the limit will actually be reached.
It's so hard to predict because technically the debt limit has already been passed. A limit of $28.5 trillion was reimposed Aug. 1, but the Treasury Department has been able to stave off a default through a process called “extraordinary measures.” What that essentially means is moving money around and being strategic on paying bills only as they are absolutely due.
The Treasury Department will have no means to pay America’s bills unless Congress acts.
On Friday, a fresh projection from the Bipartisan Policy Center found that we will hit the debt limit between Oct. 15 and Nov. 4.
“Right now there is a little bit of a game of political chicken taking place,” Brian Levitt, global market strategist at Invesco, recently told Yahoo Finance.
Here are all the recent predictions as to when the U.S. might default if the standoff in Congress continues.
‘Sometime in October’
Billions of dollars flow into the U.S. Treasury every day – mostly in the form of tax revenues – and billions more flow out to pay the government’s bills. The exact timing of debt limits have been difficult to predict for decades because it’s just hard to keep track of all the money and know when it will arrive in U.S. coffers.
Those in the prediction business have found things even more challenging this time around with the massive new government spending programs enacted to combat the effects of the coronavirus pandemic to take into consideration.
Treasury Secretary Janet Yellen sounded the alarm last weekend in an op-ed in The Wall Street Journal, and warned of a debt default at some point next month. If Congress fails to act, she wrote, then “sometime in October—it is impossible to predict precisely when—the Treasury Department’s cash balance will fall to an insufficient level, and the federal government will be unable to pay its bills.”
Yellen added that a default would cut off vulnerable Americans from programs like Social Security as they confront the ongoing pandemic, and “we would emerge from this crisis a permanently weaker nation.”
The Bipartisan Policy Center tracks the debt limit “X Date.” This week's estimate of a likely default between Oct. 15 and Nov. 4 is a further refining of its estimate from two weeks ago, when the group estimated the date would fall between mid-October and mid-November.
“No one can be certain of the X Date, but we know it’s coming within a matter of weeks,” Shai Akabas, the center’s director of economic policy, noted in a statement.
The group also released a new analysis Friday showing a complicated array of payments that Treasury is managing each day to stave off a default. Outside analysts are tracking these flows of money to arrive at their projections but "no one—not even the Treasury secretary—can know precisely when the X Date will arrive" the report notes.
The report laid out what payments – from Social Security benefits to pandemic assistance – would be missed if X date arrives and Treasury doesn't have the funds. The default could also cost millions of jobs in the economic upheaval that would likely follow a default.
The latest analysis from Moody's Analytics this week puts their best estimate of a default, "given the uncertainty in the timing of Treasury’s payments and receipts," at Oct. 20.
On that day, authors Mark Zandi and Bernard Yaros note, "Treasury has a more than $20 billion payment due to Social Security recipients."
A fourth projection comes from Independent research firm Wrightson ICAP tracks Treasury Department outlays closely, and in a recent commentary said the “crunch date” would likely be somewhere around Oct. 25 or 26. The firm thinks, absent Congressional action, there is a low probability the Treasury will be able to meet its obligations into November.
Finally, the Congressional Budget Office, the agency that provides financial information to Congress, estimates the debt limit to be reached sometime in October or November. Once the extraordinary measures are exhausted, the government will see “delays of payments for government activities, a default on the government’s debt obligations, or both.”
‘We need some guardrails’
Congress has never allowed a default before, but it's gotten close. In 2011, a stalemate over the debt limit was resolved in time but immediately afterwards, the U.S. credit rating was downgraded by Standard & Poor's, which reduced the rating from AAA to AA+.
Part of what makes the situation so maddening to observers in Washington and on Wall Street is that the debt limit has little to do with current spending debates and more to do with political brinkmanship. The question is whether the government will fulfill the payment obligations it agreed to in the past.
In her op-ed, Yellen noted the current debt limit situation is based on Trump-era spending. She said things would be the same right now even if the Biden administration hadn’t authorized any additional new expenditures since January.
To solve the crisis, Democrats are trying to push a measure that would address a debt limit alongside another looming deadline – a possible government shutdown at the end of this month.
The House of Representatives passed the measure and Senate Majority Leader Chuck Schumer announced a Senate vote on Sept. 27 at 5:30 pm ET. Republicans objected to the dual approach of the Democrats and vowed to block it.
If it is indeed stalled on Monday, lawmakers will need to scramble to address a government shutdown by the end of next week and the debt limit likely coming a few weeks after that.
Republicans have taken the position that the only approach to solve the debt limit issue is for Democrats to raise the ceiling using the budget reconciliation process, without any Republican votes.
In a joint statement about the plan, House Speaker Nancy Pelosi and Senate Majority Leader Chuck Schumer noted that the proposal to include a suspension of the debt limit through December 2022 “would provide an amount of time commensurate with the debt incurred as a result of passing last winter’s bipartisan $908 billion emergency COVID relief legislation” – which was supported by Republicans and signed into law by then-President Trump.
Rep. Kevin Brady (R., Tex.), the Ranking Member on the House Ways and Means committee, said in a recent Yahoo Finance interview that “Democrats haven't had a conversation with us all year on any of these key issues, so our thinking is they must be wanting to go it alone.” Brady sees no chance of Republican support unless Democrats bring forward a plan to curb spending going forward.
“We need some guardrails that really returns us to normalcy,” he said.
This article was updated on Sept. 24, 2021 to add information from the Bipartisan Policy Center's new analysis.
Ben Werschkul is a writer and producer for Yahoo Finance in Washington, DC.