Alec Phillips, a research chief political economist at Goldman Sachs, expects the United States to have time until June 8 before the country runs out of money to service its payments.
Earlier, Treasury Secretary Janet Yellen had said that the X-date—the date when the United States will be unable to pay its bills and thus risk a default—could be June 1. However, Phillips estimates that the X-date will come later. The X-date “could be June 1. It also could be June 8th or 9th. And it also could be, probably not, sometime in July. So, our guess right now is that the real deadline is probably more like June 8th or 9th. That’s when they are at sort of greatest risk,” he said in a May 19 interview with Bloomberg.
“The reality is Congress has to do this (raising the debt ceiling) at some point very soon, and they should just go ahead and do it. So, waiting for the last minute isn’t necessarily the right move, even though we think that maybe they could go a little bit longer.”
Phillips also pointed to the possibility of rating agencies downgrading the United States. In an April 25 post, Fitch said, “If, ahead of the X-date, we were to assess the risk of a default as having become more material, the US’s rating would likely be placed on Rating Watch Negative and further rating action could be considered.”
However, if the debt limit were not raised or suspended in time to prevent a default, Fitch would move the U.S. ratings to Restricted Default (RD).
“Affected Treasury securities would carry a ‘D’ rating until the default was cured. Prioritizing debt payments to avoid an immediate default, if this were possible, might not be consistent with a ‘AAA’ rating.”
Phillips says the odds of a ratings downgrade are “pretty low” as he believes the chances of the United States missing any payment are low.
Treasury Cash Balance
The cash balance at the U.S. Treasury has drastically fallen in just a week. On May 11, the treasury’s closing cash balance stood at $143.31 billion. A week later, on May 18, the cash balance dropped to $57.34 billion, a decline of almost 60 percent.
“The US Treasury has $57 billion in cash on hand while the government carries $31 trillion in debt. That’s the equivalent of an average person having $1,000 in cash on hand and $543,859 in debt. Scary,” Grit Capital CEO Genevieve Roch-Decter said in a May 21 tweet.
Regarding the issue, Phillips predicted that the Treasury might run down its cash balance to near zero by the time lawmakers decide to raise the debt ceiling. The Treasury could then issue $500 billion–$600 billion worth of bills over a few weeks.
“The concern is that … that is going to pull money out of other places and put it on the Fed’s balance sheet where it’s not being invested in equities or whatever else. I think it is something to keep an eye on,” he said.
Political Gridlock Over Raising Debt Ceiling
With only a few weeks remaining before the X-date arrives, Republican and Democrat lawmakers have yet to reach a deal on raising the debt ceiling. On May 21, House Republican Speaker Kevin McCarthy (R-Calif.) and President Joe Biden discussed the issue on the phone.
The two are set to meet on May 22 to further discuss raising the debt ceiling. McCarthy and Republicans want the Biden administration to implement spending cuts and increase the defense budget. Biden has indicated that he is open to making the spending cuts.
Some Senate Democrats have asked Biden to invoke the U.S. Constitution’s 14th Amendment to prevent a debt default.
However, the U.S. Chamber of Commerce sent a letter to the president on May 19, warning that attempting to invoke the 14th Amendment powers would be “as economically calamitous as a default triggered by a failure to lift the debt limit in a timely manner.”
“The Constitution is clear. The power to ‘borrow money on the credit of the United States’ is given to Congress (Article 1, Section 8) and not the Executive,” the letter stated.
Article cross-posted from our premium news partners at The Epoch Times.
Starting the Day With a Scripture-Inspired Roast Helps Center Your Thoughts on Eternal Truths Amid Temporal Pressures
The world can seem chaotic, especially right after we wake up. Many believers start their mornings reaching for something familiar — a hot cup of coffee — yet end up settling for mediocre brews that do little more than deliver a caffeine jolt. The daily grind of life, with its endless distractions, news cycles, and responsibilities, can leave even the most faithful feeling spiritually parched alongside their physical fatigue. What if your morning ritual could do more than wake you up? What if it could ground you in truth, nourish your body with exceptional quality, and quietly advance a kingdom purpose at the same time?
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America more than likely has no trouble paying it’s bills. What it does have trouble doing is paying bills without a budget. Cut all federal salaries, cancel all entitlements (the government owes no one anything), reduce all federal department budgets, rein in all unnecessary spending. Enforce budgeting policy and procedures at all levels of government.Enforce work requirements for welfare recipients. Cut prisons budgets of all pork and privileges. It’s prison not a holiday inn. Enforce mandatory death penalty for murder that has been proven and prosecuted. We’ll save tons of money not housing and feeding these people for the rest of their lives.
You do this and watch the debt reduce.