Treasury Secretary Steven Mnuchin has notified Congress that it is “critical” for the debt limit to be extended by September 29th in order to ensure that Treasury can continue to fund the obligations of the federal government.
This is consistent with BPC’s latest projection from July: If policymakers do not act on the debt limit, Treasury would have insufficient cash to meet all financial obligations sometime in early or mid-October (what we call the “X Date”).
- The Congressional Budget Office (CBO) has similarly estimated this point in early to mid-October 2017.
Due to the unpredictability of cash flows – and thus, all of these projections – policymakers would need to act in advance of October if they intend to ensure that all obligations of the U.S. government are paid in full and on time.
After running out of cash, Treasury would be unable to meet approximately 23 percent of all obligations 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 there is substantial uncertainty about operationalizing them.
October 2 is a particularly difficult day for federal finances due to a large payment that is owed to the Military Retirement Trust Fund. This payment amounted to $81 billion in 2016.
Financial and economic risks grow as the debt limit impasse goes on. Already, interest rates have risen on short-term Treasury securities that mature around the time Treasury is projected to run short on extraordinary measures and cash on hand.
Ongoing risks include increasing costs to taxpayers, delayed payments to individuals and businesses, and catastrophic market impacts if the U.S. government actually defaulted on its debt (unprecedented in modern history).