Republicans in Washington have been throwing around all kinds of ideas about what they want in return for raising the federal debt ceiling — and the conventional wisdom is that they have until late summer to decide.
But two economists say that may not always be the case. The government can find out by the end of April that it cannot continue to borrow or pay all government bills in the first half of June, he said.
“We originally said there were risks to monitor. Now there are risks to monitor closely,” Lou Crandall, chief economist with financial analytics firm Wrightson ICAP, told HuffPost.
“Treasury hasn’t said that mid-June, early to mid-June is ‘X date,’ but I would say there’s a 20% chance,” he said.
Nancy Vanden Houten, head of the US economy at advisory firm Oxford Economics, has a similar assessment.
“I think there is a significant risk that the dead date could happen in early June,” he said.
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Both economists stressed that June is not the most likely deadline, and both see a more likely deadline still in the summer — late July or early August for Vanden Houten, and late July for Crandall.
But the sudden deadline in June to raise or delay the debt ceiling will increase pressure on Washington to act quickly in negotiations. Failure to do so could put the US debt at risk of default, which would undermine the dollar’s role as the global reserve currency.
The lumpy way in the government’s cash flow is the reason for the uncertainty about when a deal should be done. The government borrowed money from Wall Street in the form of debt, to pay tax rebates to income tax filers from January to March. (The Department of Finance estimates that the debt will be total $932 billion this quarter.)
But cash flow reverses sharply with the arrival of April and the tax payment date for individual and corporate taxpayers. The April revenue shower often determines whether the annual budget deficit will be larger or smaller than expected. In this case, it can be determined that the Treasury will be able to last until June without an increase in the debt limit.
“We originally said there was a risk to be monitored. Now the risk is to be monitored closely.”
– Lou Crandall, chief economist with Wrightson ICAP
individual Income tax deadline is April 18 this year instead of the traditional April 15, due to a quirk of the calendar. Crandall said analysts won’t know until late April or early May what the revenue picture is.
“The cone is forecast to tighten dramatically every week from April 15 through the end of the month,” he said.
The Treasury is happy to have about $600 billion in cash on hand if the U.S. is locked out of capital markets for a period of time, as was the case shortly after September 11. less from a risk management perspective.”
“I think we will have a clearer picture by the end of April,” he said. “If individual income tax payments after the April 15 deadline are only 5% to 10% weaker than my forecast, I think the risk of the Treasury running out of cash in early June will increase.”
So far, the White House and House Republicans have only taken preliminary steps publicly in what they expect will be long and potentially chaotic negotiations. President Joe Biden and House Speaker Kevin McCarthy (R-Calif.) met at February 1st for the initial gathering.
The White House’s opening position was that the debt limit was non-negotiable, and implicitly threatened defaults. McCarthy has said there will be no default, But the administration should be open to bargaining over the GOP’s demands for unspecified spending cuts.
In the sluggish pace so far, the obstacles by the Republicans failed to articulate a specific slate of requests and the White House feels more confident that it has ground high in the budget problem, raising the possibility that Washington will wait for Wall Street to get nervous when Wall Street, has seen the scenario this plays out so often in the month, will wait for Washington players to start sweating.
The Ministry of Finance has kept the powder dry, running through its well-worn playbook of accounting moves to stay below the limit and make no predictions of its roll-off date. Treasury Secretary Janet Yellen has told Congress “It is unlikely that cash and extraordinary measures will be exhausted before the beginning of June.”
The nonpartisan Congressional Budget Office is set to release its own projections on Wednesday along with its annual economic and budget forecasts.