It is called the “X date,” which is the day the federal government runs so low on funds that the Treasury cannot pay all its bills. Over the past several years, squabbling in Congress has brought the government close to this point before.
According to a study published March 2 by a major think tank, the X date will occur sometime at the start of the fourth quarter:
The Bipartisan Policy Center today updated its debt limit projections, which now show that absent congressional action, the Treasury Department will no longer be able to pay all of its bills in full and on time at some point in October or November this year. This is the updated range for what BPC calls the debt limit “X Date.”
On March 16, the amount of the federal debt limit goes to $20 trillion, which is when the current suspension of the debt ceiling expires. The Treasury has a set of “extraordinary measures,” by which it can buy itself a few months, that kick in then. These are:
(1) suspending sales of State and Local Government Series Treasury securities; (2) determining that a “debt issuance suspension period” exists, which permits the redemption of existing, and the suspension of new, investments of the Civil Service Retirement and Disability Fund and the Postal Service Retirees Health Benefit Fund; (3) suspending reinvestment of the Government Securities Investment Fund and (4) suspending reinvestment of the Exchange Stabilization Fund. These measures are described in more detail below.
The rules do not buy much time. According to the provision, “These measures are limited and therefore can postpone only briefly the need for an increase in the statutory debt limit.” At that point, the federal government goes into default. The threat that it cannot pay its obligations, which include debt issued by the United States, becomes a reality. The Treasury’s comment on the event is that it could cause “catastrophic economic consequences.”
The Bipartisan Policy Center stated its reason for the October/November time frame:
One particular danger point is the large payments owed to government trust funds that typically fall on the first business day of the new fiscal year – October 2 in 2017.
Problems with the debt ceiling in the past have triggered events that could cost the government dearly. In June 2011, when it appeared the Treasury was close being out of money, Moody’s warned the government’s top-tier Aaa rating was at risk. In August of that year, S&P actually downgraded U.S. debt by one notch. Under circumstances that make U.S. debt even more risky, that increased risk makes it more likely the Treasury may have to pay higher rates for money. Those higher rates cause an increase in government spending, and that adds to pressure on the size of the deficit. Gridlock on the subject of the debt ceiling caused similar anxiety in 2013.
Congress has several months to address the question. But, in a period of great political turmoil and polarization about the president’s new budget, the threat of a debt problem is real.