You might remember that at a congressional hearing on May 24, when asked when the debt ceiling would have to be raised to avoid default, White House budget director Mick Mulvaney went all ¯\_(ツ)_/¯ and said that it was his understanding that “the receipts, currently, are coming in a little bit slower than expected.” Tax receipts, that is, which means the treasury, already employing “extraordinary measures” to keep below the legal limit on federal borrowing, has less cash on hand to tread water until Congress gets around to raising that limit.

That’s significant because of three things that happened on June 30.

AD

AD

First, the Congressional Budget Office issued a report that warned that if the debt ceiling isn’t raised the federal government will “most likely” not have enough cash on hand to pay all of its bills in “early to mid-October.”

Second, in response, Treasury Secretary Steven Mnuchin said at the White House, “For the benefit of everybody, the sooner that they do this the better.”

Third, 10 Republican senators sent an urgent letter to Senate Majority Leader Mitch McConnell (R-Ky.), warning that after they return from the July 4 recess that there are “only 33 potential working days remaining before the end of the fiscal year.”

That calculation is probably different now that McConnell has shrunk the August recess. But with every waking moment spent on getting Trumpcare out of the Senate, you can pretty much guarantee no real movement on raising the debt ceiling. Oh, did you forget there is a fiscal year 2018 budget that needs to get done before the start of the fiscal year on Oct. 1?

The Bipartisan Policy Center estimated last March that sometime between October and November, the U.S. treasury might not have enough cash on hand to meet all of its financial obligations. That’s what it calls the “X date.” Well, on Wednesday, the nonprofit that lives up to its name revised its prediction.

“There is currently significant evidence to support an ‘X Date’ within the early to mid-October period,” the BPC announced. And this squares right up with what the CBO reported late last month. Early October is not only critical because it is the start of a new budget year. Specifically, on Oct. 2, as the BPC has been pointing out for months, Treasury must pump money into the Military Retirement Trust Fund. That payment was $81 billion in 2016.

AD

AD

The federal government not having enough money on hand to pay all of its bills on time would destroy the full faith and credit of the United States and throttle the American people in ways unimaginable. “When we’re talking about the payments that the government makes, these are to every American individual out there,” Shai Akabas, director of fiscal policy at BPC, said on a call with reporters on Wednesday. “Almost every single person gets some payment from either directly or indirectly from the federal government. So, whether, it’s Social Security beneficiaries, doctors who provide Medicare and Medicaid and the patients that they rely on them, welfare recipients … federal employees. These are all people who are waiting for payments from the government and people are waiting, then, in turn for payments from those people or businesses because the economy is obviously very dynamic and relies on each payment going before the next payment.”

As we get closer to that X date and the hysteria builds, you’re going to hear Republican lawmakers say there’s nothing to worry about because as long as the treasury makes the legally mandated interest payments, the United States won’t be in financial default in the eyes of credit-rating agencies and the global markets. Don’t buy it. Remember, the credit rating of the U.S. was downgraded for the first time in history when we went through the debt-ceiling crisis in 2011.

Akabas allows that those folks are technically correct. “My sense is that the credit-rating agencies’ people who evaluate technical default do actually draw distinctions between missing other payments that the government owes and actually missing a payment to bondholders because that’s effectively what the credit rating is. It is the credit of how likely you are to make your payments to bondholders.” Then he added this: “But in terms of what the perception would be, which is, I think, just as important, if the federal government, which is considered the most creditworthy entity on the planet, is missing payments that is owed on a large scale to either individuals or businesses, even if they are continuing to make all payments to bondholders, then I think you will see consequences that we can’t foretell right now.”

Akabas said he doesn’t think that “we will ever be in a position where policymakers who are entrusted with the responsibility of the full faith and credit of the United States will desire to default on our debt.” Still, he had an implicit warning for lawmakers:

But they could, either through their actions or lack of action, put us in a position where things spiral out of their control and then they’re not the ones who are determining whether or not we are defaulting on either our obligation or our debt. And so I would expect that if the federal government starts missing payments, we will see ramifications, whether it’s in the financial markets, whether it’s in terms of the general public or otherwise that are unanticipated, and that will cause, again, a lot of concern among folks who are responsible for these matters.