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US default date is estimate Congress wants, Yellen can't give

Christopher Condon, Bloomberg News on

Published in Political News

“When we take up the debt limit this month, we expect it to be bipartisan once more,” Pelosi said.

But 46 GOP senators have pledged not to vote for a debt-limit hike, tying their hard-line position to opposition to a $3.5 trillion tax and social spending package that Democrats are working to push through Congress on their own.

Against that backdrop, members of Congress are pressing the Treasury for the so-called x-date, when the money is likely to run out.

The limit kicked in at $28.4 trillion at the beginning of August following a two-year suspension. Since then, the Treasury has been drawing on its cash pile and withholding contributions to certain programs — the “extraordinary measures.”

It’s unrealistic to identify the specific date for when those efforts will run out, former Treasury insiders say.

A team of civil servants in the Bureau of the Fiscal Service is charged with forecasting, in as much detail as possible, day-to-day revenues and expenditures. Yet those can be thrown off by changing economic conditions that affect tax collection and by unexpected spending demands. Yellen has argued that the pandemic has made predictions especially difficult, on both sides of the ledger.

“Each day that gets closer, it just becomes exceptionally stressful,” Clark said. “You’re waiting for a shoe to drop, a forecast to be missed.”

 

The uncertainty also creates political risk.

If Yellen were to give Congress a precise date but cash dried up ahead of that, she may get blamed for a default. Conversely, if Congress doesn’t lift the ceiling and the Treasury is able to hang on for a few days past the deadline, she might be accused of having misled Congress in order to apply pressure.

In an opinion piece Sunday in the Wall Street Journal, Yellen reiterated that, “Sometime in October — it is impossible to predict precisely when — the Treasury Department’s cash balance will fall to an insufficient level, and the federal government will be unable to pay its bills.” She also reiterated her call for Congress to swiftly boost the debt limit.

The Treasury prefers to offer date ranges as opposed to a drop-dead date. But so far that range is unworkably wide for Congress.

“It would help to have a clear and credible deadline that the Hill takes very seriously,” said Alec Phillips, chief political economist at Goldman Sachs and a former Senate Finance Committee staffer. “Without a deadline it’s going to be hard to get people to act, and right now it’s not all that clear what the deadline is.”

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