Here's why debt ceiling watchers have June 15 circled on their calendars
Experts in Washington and on Wall Street are making their best guesses for how close the government will come to defaulting in the months ahead if Congress remains gridlocked.
A key date that keeps coming up is June 15.
That is the deadline for taxpayers to pay their second installment of estimated taxes for 2023. It's also likely the next time the government’s books will improve appreciably now that the main tax season is winding down.
Those funds — combined with financial flexibility offered by accounting maneuvers the Treasury Department can deploy — are what stands between the US and a default.
What's likely to happen between now and then is that Treasury “will gradually burn through its remaining cash on hand and extraordinary measures” to pay for government operations, Shai Akabas of the Bipartisan Policy Center told Yahoo Finance by email.
Balances that could get 'dangerously low’
As of April 19, the Treasury Department’s general account had a closing balance of about $265.1 billion. Its balance sheet is expected to improve for a few more days as more tax returns are processed before beginning a gradual decline.
The question is how low the balance will go.
Without a deal in Congress, "it’s possible that Treasury’s cash on hand will be dangerously low in early June prior to an influx of quarterly revenues mid-month," Akabas wrote.
Wrightson ICAP, a research firm that specializes in economic data, projects that Treasury's operating balance could fall to a low of $26 billion on June 8 before temporarily turning around as quarterly taxes come in.
A projected balance like that may be enough to avoid a default in June, but the uncertainty inherent in making these projections means no one yet can rule out a balance of $0 that month.
Wrightson currently predicts a 20% chance of a June X-date, but experts there and elsewhere emphasize that it won't be until May — when final tax season revenue data is in — to definitively say one way or another.
On Thursday, the influential Congressional Budget office announced it would release an updated report on federal debt on May 12, and the Treasury Department may also provide more specific guidance in the weeks ahead.
Even if if the US government can stay afloat past June 15, it would simply delay the inevitable with a US default likely unavoidable in July or August without a debt-ceiling deal among House Republicans, Senate Democrats, and the White House.
Likely economic effects long before June 15
In a note released Tuesday, Goldman Sachs economic researchers found that weak tax collections in April means “an increased probability that the debt limit deadline will be reached in the first half of June.” It was a notable shift for the Goldman experts who, like others, have long focused on July and August — or perhaps even September — as the most likely timing for a default.
Observers also note that economic effects are likely to pile up simply by approaching a possible default.
One debt ceiling fight from recent history provides an example: In the summer of 2011, Washington narrowly averted a crisis, but the economic chaos it sowed led to Standard & Poor's to downgrade the US credit rating from AAA to AA+ for the first time in history.
JPMorgan analysts noted this week that the economic stresses from approaching a default “typically start in the T-bill market 2-3 months before the X-date” as money market funds avoid certain Treasury bills.
The analysts wrote this week they expect it to become an issue as early as May as the markets grapple with "a non-trivial risk of a technical default on US Treasuries." This week, the spreads on US five-year credit default swaps, which are one market-based indicator of the risk of a default, rose to their highest level in over a decade.
Meanwhile, negotiators in Washington appear as far apart as ever, with both sides sharing little more than insults.
As House Speaker Kevin McCarthy unveiled a plan Wednesday that would cap government spending in exchange for a debt ceiling raise, he also added a barb that Biden is “skipping town to deliver a speech in Maryland, rather than sitting down to address the debt ceiling.”
President Biden, during his Maryland speech a few hours later, shot back that McCarthy’s plan was filled with “wacko notions.”
Ben Werschkul is Washington correspondent for Yahoo Finance.
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