When Will Treasury Run Out of Cash to Pay its Bills?
Congress already has its hands full with finding a fiscally-responsible solution for the expiration of the government funding bill at the end of the month, but another budget deadline is just around the corner.Today, the Bipartisan Policy Center (BPC) released their detailed analysis of the debt ceiling, projecting Treasury to run out of cash to pay bills between October 18 and November 5. This news comes on the heels of Treasury Secretary Jack Lew’s letter to Congress, which predicts the exhaustion of borrowing authority by mid-October (at which point Treasury would have $50 billion cash on hand).
The U.S. already reached its statutory debt limit of $16.699 trillion on May 19, and the BPC report, authored by Steve Bell, Shai Akabas, and Brian Collins, highlights the “extraordinary measures” that Treasury is currently using to delay defaulting on obligations, including the estimated $108 billion of remaining measures that were available as of the end of August. As we’ve discussed in great detail before, these measures include borrowing from the Federal Employees’ Retirement System G-Fund, the Exchange Stabilization Fund, interest payments and cash receipts to the Civil Service Fund and Postal Fund, and maturing securities in the Civil Services Fund and Postal Fund. Unfortunately, October is a bad month for the government’s finances, and therefore Treasury is likely to run out of cash to pay bills in the latter half of the month or very early November.
In addition to predicting the timing of the so-called “X date,” the BPC report provides a host of information on major payments due after the X date, necessary debt rollovers in that time, and what might happen after the X date. Most critically, they estimate that Treasury would be about $106 billion short of making all payments owed due between October 18 and November 15, thus leaving 32 percent of bills unpaid. On top of that, during what is sure to be a chaotic time, Treasury must roll over $370 billion of maturing debt. While this is a straightforward process during normal times, the operation is far more unpredictable in a post-X date environment. Treasury may have to pay higher interest rates to attract enough buyers, and although unlikely, there is a small risk that the auction would not attract enough bidders, forcing them to use cash on hand to redeem securities or even potentially default on the debt.
There are many theories about how Treasury would operate in a post-X date world, but according to a report from Treasury’s Office of the Inspector General (OIG), the most likely course of action would be to wait until there is enough cash available to make an entire day’s payments at once. Payment delays would therefore continue to lengthen and cascade the further past the X date we went. If the X date were October 18, payments on that day might “only” be delayed by three days, but Social Security and Veterans benefit payments due on November 1 might be delayed by nearly two weeks.
To get us through the end of 2014, BPC estimates that lawmakers would need to increase the debt limit by around $1.1 trillion. With the expiration of annual appropriations on October 1 also fast-approaching, BPC’s analysis provides important insight into the timing the other big fiscal hurdle. As we said back in May, lawmakers should raise the debt limit as quickly as possible to prevent this analysis from becoming reality, while also using the opportunity to enact enough deficit reduction to put debt on a downward path as a share of GDP.