The Treasury Department will be unable to pay all the nation’s bills starting sometime between Oct. 18 and Nov. 5 unless Congress raises the debt limit, according to a private analysis released Tuesday.
The new “X date” from the Bipartisan Policy Center gives lawmakers a more specific time frame for action to avoid a government default and provides details about how the Treasury might handle paying bills after exhausting its borrowing ability.
Treasury Secretary Jacob J. Lew formally told Congress last month that the U.S. would reach the limit of its $16.7 trillion borrowing authority in the middle of October.
When the Treasury no longer can borrow, it would be dependent on whatever cash is left on hand and the daily revenue flowing into government coffers to pay its bills. Those bills include interest payments on Treasury securities.
Predicting the exact amount of money coming in from tax payments and other sources on any given day is tricky, making it difficult to set an exact date for a default, said Steve Bell, senior director of the center’s Economic Policy Project.
“Treasury is running out of options and that puts you in a very dangerous position if $10 billion comes in one day and you expected $12 billion,” he told reporters.
By mid-October, “there will be substantial uncertainty” about when the government would be unable to pay all its bills, Bell said.
“It would be, in my view, very imprudent … not to have resolution before then because of the fear of market reaction,” he said.
A standoff over the debt limit in 2011 raised fears of a first-ever U.S. government default and led Standard & Poor’s to downgrade the nation’s credit rating.
The Bipartisan Policy Center said the debt limit would need to be raised $1.1 trillion to delay the next fight until the end of 2014 – after the mid-term congressional elections.
Many Republicans are balking at increasing the debt limit again.
House Speaker John Boehner, R-Ohio, has said any increase must be offset by budget cuts or spending reforms at least as large as the increase. But Lew has said President Obama will not negotiate over raising the debt limit because it is needed to cover spending already authorized by Congress.
Some Republicans have said the government can prioritize payments to holders of Treasury securities, thus avoiding a default on those obligations.
The Treasury might be able to prioritize interest payments on securities, the Bipartisan Policy Center analysis said. Those payments are handled by a different computer system than other government obligations.
But Bell said there would be “political danger” if the government were paying bondholders, which include the Chinese government, instead of Americans on Social Security.
It would be difficult to prioritize other payments. The Bipartisan Policy Center analysis said the Treasury Department might not be able to sort through nearly 100 million payments due each month to choose which to pay.
A more likely scenario, based on statements Treasury officials made in a 2012 inspector general’s report, would be to delay payments, the analysis said.
The Treasury Department could wait until it received enough money to pay a specific day’s bills. The delays would start out short but would build over time.
For example, if the Treasury hit its borrowing authority on Oct. 18, payments to Medicare and Medicaid providers due that day would be delayed one business day, to Oct. 21. But Social Security checks, veterans’ benefits and active-duty military pay due to be issued on Nov. 1 would not go out until Nov. 13.
The government technically hit the debt limit in May. But the Treasury has been using what it calls “extraordinary measures” since then to juggle the nation’s finances and continue paying its bills. Those measures included suspending investments in some federal pension funds and in a currency exchange rate fund.
Those actions had the potential to give Treasury about $303 billion in additional money to pay the nation’s bills. As of Aug. 31, Treasury had about $108 billion of that cushion left to use, the analysis said.