EVERYONE SEEMS TO HAVE A FORECAST on when the U.S. could default on debt — some optimists think it might not come until this summer, but new data shows that the Treasury could run out of money within two weeks.
OF ALL THE REASONS TO WORRY about a genuine crisis, the most persistent factor is simply time. Congress took way too long to ratchet up negotiations this spring, and now there’s probably not enough time to finish a deal by early June.
HOW MUCH TIME IS LEFT? Mick Mulvaney, the former OMB Director, said yesterday that some estimates are too alarmist. The so-called “X Date” might not come until late June, he said.
MANY MEMBERS OF CONGRESS, mostly Republicans, believe Janet Yellen has been too pessimistic and that there’s enough money to keep the government funded into the summer.
BUT THAT ASSERTION HIT A WALL yesterday, when Bloomberg reported that Treasury’s cash balance fell to $87 billion on Monday from about $140 billion Friday, partially due to an unexpectedly large volume of state and local-government securities redemptions.
IF TREASURY HAS RUN THROUGH all but about $87 billion of its authorized extraordinary measures, a crisis is only weeks away, perhaps not enough time for a scheduled cash replenishment in mid-June.
HERE’S OUR TAKE ON WHAT MAY HAPPEN:
* Use of the 14th Amendment to the Constitution to avoid default: A gimmick, but an increasingly plausible option.
* Reaching a budget deal by early June: Unlikely, not enough time, and there’s little consensus between the two parties on spending cuts.
* A “discharge petition” to force a Congressional vote: too complicated, not enough votes.
* An extension until later in the summer: The logical move, giving negotiators a few more weeks.
* A debt default: Can’t totally rule it out, but these other options will come first.
BOTTOM LINE: With President Biden in Asia until Sunday and negotiators making very slow progress, the issue to watch will be Treasury cash balance data — which persuades us that an unprecedented crisis may be only two weeks away.
Related: A Warning From the Fed on Commercial Real Estate
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