Treasury Secretary Steven Mnuchin is reportedly seeking to arrange another budget and debt ceiling meeting with House Speaker Nancy Pelosi, according to Senate Appropriations Chairman Richard Shelby.
Perhaps Mr. Mnuchin has noticed the dramatic ‘kink’ that has appeared in the short-term US Treasury market.
Focusing in specifically on the ‘kink’, we see a dramatic escalation in debt-ceiling anxiety over the last month…
In fact, The Bipartisan Policy Center now forecasts a risk that the debt limit “X Date” – the date when the federal government can no longer pay all of its bills in full and on time – could occur in the first half of September. This “X Date” risk falls earlier than BPC’s previous projection range, based on new data and analysis.
As the summer progresses, the Treasury Department will continue to expend its cash on hand and extraordinary measures — legally permissible accounting maneuvers that enable limited additional borrowing authority when the debt limit is reached, as it was in March.
“The latest data reveal a serious risk that the ‘X Date’ could fall in early September, particularly if federal revenues underperform,” said Shai Akabas, BPC’s director of economic policy. “The alignment of certain payments in the first two weeks of the month, prior to when Treasury will receive a cash influx of quarterly tax payments, could exhaust Treasury’s borrowing room.”
“Even though our projection continues to show that the most likely timing of the ‘X Date’ remains early October, uncertainty is high, and it would be reckless for policymakers to run the risk of default by failing to deal with the debt limit in advance of the August recess.”
Federal revenues for Fiscal Year 2019 have been sluggish, with overall revenue growth running at less than 3 percent. Weaker-than-expected corporate income tax collections, in particular, seem to be related to the 2017 tax cuts. When combined with BPC’s increased ability to base estimates on its short-term model as the “X Date” draws nearer, updated analysis has unearthed the possibility of an inability to meet all federal obligations in the first half of September.
“It is unusual for us to note a specific risk outside of our latest projected ‘X Date’ range, but this new analysis has revealed a dangerous scenario that cannot be ignored. Budget negotiators need to know that time is running short,” Akabas stated.
“All forecasts carry uncertainty, but given the potentially devastating economic consequences, it would be irresponsible for Congress to ignore this new forecast. The only way to take the possibility of default off the table this year is to pass a debt limit extension in the coming weeks.”
Senate Majority Leader Mitch McConnell said yesterday that he hopes lawmakers can consider a budget deal “soon” to avoid the chaos caused by short-term spending bills, because the House is in session for only three weeks before the August break, “time is running out.”