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2021 Debt Limit Analysis

Key Takeaways:

  • U.S. Treasury Secretary Janet Yellen has notified Congress that the Treasury Department (Treasury) may exhaust its cash on hand and extraordinary measures shortly after December 15, 2021.
  • BPC projects that if policymakers do not act on the debt limit, Treasury will most likely have insufficient cash to meet all its financial obligations sometime between December 21, 2021, and January 28, 2022 (what we call the “X Date”).
  • Due to the unpredictability of cash flows—and thus, all debt limit projections—policymakers will need to act in the coming weeks, prior to the holiday recess, if they intend to ensure that all obligations of the U.S. government are paid in full and on time.
  • December 15 is a noteworthy day. By then, Treasury has stated it will have transferred $118 billion authorized by the Infrastructure Investment and Jobs Act of 2021 to the Highway Trust Fund. (This is factored into BPC’s X-Date range.) Quarterly corporate tax receipts are also due.
  • Financial and economic risks grow as the debt limit impasse drags on. Interest rates have already risen on short-term Treasury securities that mature around BPC’s X-Date range.
  • After running out of cash, Treasury will be unable to meet approximately 35% of all payments due in the several weeks that follow. How Treasury would operate in such an environment is unclear. Prioritization and delayed payments are two possibilities, but substantial operational and legal uncertainty exists about operationalizing them.
  • Ongoing risks include increasing costs to taxpayers, delayed payments to individuals and businesses, and potentially catastrophic market impacts if congressional inaction to raise the debt limit causes the U.S. government to default on its debt (unprecedented in modern history).
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