Washington Republicans have tossed around all sorts of ideas about what they would want in return for raising the federal debt ceiling — and the conventional wisdom was that they had until the end of the summer to decide.
But two economists say that’s not necessarily the case. The government may find as early as the end of April that it will no longer be able to continue to borrow or pay all government bills in the first half of June, they say.
“Initially I said it was a risk to monitor. Now it’s a risk to watch,” Lou Crandall, chief economist at financial analyst firm Wrightson ICAP, told HuffPost.
“Treasury didn’t say mid-June, early to mid-June is ‘X date’, but I’d say there’s a 20% chance,” he said.
Nancy Vanden Houten, chief economist at the consultancy Oxford Economics, had a similar assessment.
“I think there is a significant risk that the deadline will be early June,” he said.
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Both economists emphasized that June is not the most likely deadline, and both saw a much greater likelihood that the actual deadline would be even later in the summer: late July or early August for Vanden Houten and late July for Crandall.
But an abrupt June deadline to raise or suspend the debt ceiling would increase pressure on Washington to quickly begin negotiations. Failure to do so could risk an eventual US debt default, which in turn would undermine the dollar’s role as the global reserve currency.
The murky way in which government cash flows work is the reason for the uncertainty about when exactly a deal needs to be done. The government borrows money from Wall Street in the form of debt to pay for tax breaks for people who file income taxes from January to March. (The Treasury Department estimates that the loan will be total $932 billion this quarter.)
But the cash flow suddenly reverses with the arrival of April and the tax payment dates for private and corporate taxpayers. That April shower of revenue often determines whether an annual budget deficit will be larger or smaller than expected. If so, it could determine whether the Treasury can get through June without an increase in the debt limit.
“Initially I said it was a risk to monitor. Now it’s a risk to be closely monitored.”
— Lou Crandall, chief economist at Wrightson ICAP
INDIVIDUAL The income tax deadline is April 18 this year instead of the traditional April 15, due to a calendar quirk. Crandall said analysts won’t know until late April or early May what the revenue picture will look like.
“The forecast cone will narrow dramatically week by week from April 15 through the end of the month,” he said.
The Treasury likes to have about $600 billion in cash in case the US is somehow locked out of the capital markets for a while, as happened shortly after 9/11. But Vanden Houten said the treasury stock could fall below $100 billion in June, “dangerously low from a risk management perspective.”
“I think we’ll have a much clearer picture at the end of April,” he said. “If personal income tax payments after the April 15 deadline were only 5% to 10% weaker than my forecasts, I think the risk of the Treasury running out of cash in early June would be quite high.”
So far, the White House and White House Republicans have publicly initiated only the first steps in what is expected to be a long and likely chaotic negotiation. President Joe Biden and House Speaker Kevin McCarthy (R-Calif.) met afterward February 1 for a first meeting.
The White House’s initial position was that the debt limit should not be subject to hostage negotiation and that the implied threat of default was irresponsible. McCarthy said there will be no default, but that the administration must be open to negotiations on GOP demands for as-yet-unspecified spending cuts.
The slow pace so far, hampered by Republicans failing to articulate a specific list of demands and the White House feeling increasingly confident that it has the upper hand on budget issues, raises the possibility that Washington is waiting for Wall Street to Trembling as Wall Street , Having seen this scenario play itself out so often in the past, will wait for the players in Washington to start sweating.
The Treasury Department kept its dust dry by going through the well-worn playbook of accounting moves to stay under the cap and not making predictions about maturity. Treasury Secretary Janet Yellen he told Congress “Liquidity and extraordinary measures are unlikely to run out before early June.”
The nonpartisan Congressional Budget Office will release its forecast on Wednesday, along with the annual budget and economic forecasts.
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