With the government shutdown more than a week old and no resolution to the standoff in sight, economy-watchers are turning their attention to the debt limit, which the Treasury Department has estimated we will breach sometime after October 17h.
That’s the date when Treasury Secretary Jack Lew has said his Department will have exhausted the “extraordinary measures” it has taken to extend the U.S. government’s borrowing ability without technically going over the debt limit. After the 17th, Lew has said, the Treasury Department will have just $30 billion in cash on hand, which Lew has told Congress is “far short of net expenditures on certain days, which can be as high as $60 billion.”
So when exactly will the country run out of time in the debt ceiling crisis?
Lew’s language leaves wiggle room as to the exact date when the Treasury Department’s funds would be insufficient to meet its obligations. While the vast majority of market analysts believe a U.S. default would be catastrophic for the world economy, there’s not a lot of consensus on the exact date when that catastrophe would take place.
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Many believe that we won’t wake up on October 18th to worldwide financial panic, that the government could probably limp along for a few more days and possibly to the end of the month before things get really bad. “A true capital D default is very unlikely to happen on October 18th,” writes Chris Kreuger, an analyst at Guggenheim Partners in a research note. He argues that since the Treasury Department has few large payments due before November 1, it’s likely that we could actually get along without missing payments and triggering a default scenario. Kreuger stresses, however, that this is just speculation. “We don’t want to sound too optimistic about a post-October 17 world. The short answer is that no one quite knows what would happen,” if we reach that date without raising the debt ceiling.
Economists at JPMorgan have been more precise, estimating that the Treasury will run out of cash on the 24th—one week after Treasury says it’s extraordinary measures will be exhausted. They write that it is “extremely unlikely” the Treasury will be able to make its payments more than a few days after the 24th, and that the Treasury would most certainly have to default on some payments by November 1st, when large outlays for Social Security, Medicare, retirement benefits for military and civil services workers, and interest payments are due.
The Bipartisan Policy Center echoes this view. In an updated analysis published this morning, it estimates that the “X date” defined as “the date on which the United States will be unable to meet all of its financial obligations in full and on time,” will come between October 22nd and November 1st. Analysts from Bank of America and Goldman Sachs also support the view that while the Treasury may be able to limp along during the second half of October, it’s highly unlikely the U.S. would avoid default without the debt ceiling being raised before November 1st.