Bipartisan Policy Center

Latest story

163 Shares169 Views

U.S. Faces ‘Elevated Risk’ of Default in Early June, a New Report Warns

by

The Bipartisan Policy Center said the government would be operating on “dangerously low” cash reserves after Memorial Day in its estimate of the so-called X-date.The United States faces an “elevated risk” of running out of cash to pay its bills between June 2 and 13 if Congress does not raise or suspend the nation’s debt limit, according to an analysis released on Tuesday by the Bipartisan Policy Center, an influential think tank that carefully tracks federal spending.The analysis underscores the growing possibility that the United States will default on its debt as soon as next week. It comes amid negotiations between the White House and Republicans in Congress to reach an agreement that would also lift the $31.4 trillion borrowing cap.“Come early June, Treasury will be skating on very thin ice that will only get thinner with each passing day,” said Shai Akabas, the center’s director of economic policy. “Of course, the problem with skating on thin ice is that sometimes you fall through.”The center said that the Treasury Department would be operating on “dangerously low” cash reserves after Memorial Day and that each day in June would come with increasing risk. The department has been using accounting maneuvers known as extraordinary measures to delay a default since the United States technically hit the debt limit in January, but those are expected to be exhausted soon.The center noted that the federal government could get a reprieve if it mustered sufficient revenue to make it to June 15, when quarterly tax payments are due. That could push a default, the so-called X-date, into July.However, Treasury Secretary Janet L. Yellen said this week that she thought it was unlikely that the federal government would have enough cash on hand to make it to mid-June.In a letter to Congress on Monday, Ms. Yellen reiterated her estimate that the X-date could arrive as soon as June 1. Her warning did not come with the caveats included in her previous updates, which had suggested that the government’s cash reserves could potentially last for a few additional weeks. Instead, she emphasized the urgency of the situation.“If Congress fails to increase the debt limit, it would cause severe hardship to American families, harm our global leadership position and raise questions about our ability to defend our national security interests,” Ms. Yellen said.As the X-date approaches, the Treasury Department has been checking with federal agencies about the timing of upcoming expenditures. Treasury recently sent a memo to agencies to inquire if any scheduled payments could be delayed. The Washington Post reported earlier on the memo.The communication is similar to what the Treasury Department conveyed during the 2021 debt limit standoff and is part of how it manages its cash reserves.“To produce an accurate forecast around the debt limit, it’s critical that Treasury have updated information on the magnitude and timing of agency payments,” Lily Adams, a Treasury spokeswoman, said. “As in prior debt limit episodes, Treasury will continue to regularly communicate with all aspects of the federal government on their planned expenditures.” More

More stories

  • 150 Shares139 Views

    in Economy

    ‘There Are No Good Options’: The U.S. Is Running Out of Money

    by

    Treasury is running out of cash, leaving little time to resolve a debt ceiling standoff that could result in default.President Biden and Speaker Kevin McCarthy will meet on Tuesday afternoon to discuss budget priorities and raising the debt limit at a precarious moment: The United States is quickly running out of cash to pay its bills.Lawmakers have less than a month to pass legislation to increase or suspend the debt ceiling, which caps the amount of money the government can borrow. The United States reached its statutory $31.4 trillion debt limit on Jan. 19, and the Treasury Department estimates that the accounting maneuvers it has been employing to prop up its cash reserves could be exhausted as soon as June 1.If the debt ceiling is not raised before the government runs out of cash — what is known as the X-date — it could be unable to pay all its bills on time, including military salaries, payments to bondholders and Social Security checks. Barring a solution, millions of Americans could stop receiving government benefits, stock markets could plunge, and a constitutional crisis could ensue.The Bipartisan Policy Center, a think tank that tracks the nation’s cash reserves, warned on Tuesday that the X-date was likely to be between early June and early August. It said that economic risks would start to surge before the money ran out and that meeting the nation’s financial obligations would soon become increasingly difficult.“The coming weeks are critical for assessing the strength of government cash flows,” said Shai Akabas, the director of economic policy at the Bipartisan Policy Center. “If a solution is not reached before June, policymakers may be playing daily Russian roulette with the full faith and credit of the United States, risking financial disaster for their constituents and the country.”A default could come sooner than expected because tax revenues have been trickling into the government’s coffers this spring. The sluggish pace is due in part to a decision by the Internal Revenue Service to give taxpayers in states that were affected by severe weather more time to file their 2022 taxes.The brinkmanship has renewed questions about how the federal government might try to prioritize certain payments if it does run out of cash, whether Mr. Biden could ignore the debt limit entirely and order the Treasury Department to continue borrowing, and if far-fetched ideas such as minting a $1 trillion coin could in fact be viable.Treasury Secretary Janet L. Yellen said on Monday that if the debt limit was not raised, then Mr. Biden would have to decide how to proceed.“I would say that if Congress doesn’t raise the debt ceiling, the president will have to make some decisions about what to do with the resources that we do have,” Ms. Yellen said on CNBC. “And there are a variety of different options, but there are no good options.”She added that failing to raise or suspend the debt limit would be an “economic catastrophe” and assailed Republicans for holding the economy hostage.“It’s a gun to the head of the American people and the American economy,” Ms. Yellen said.Mr. Biden and Mr. McCarthy will be joined by Senator Chuck Schumer of New York, the majority leader, and Senator Mitch McConnell of Kentucky, the minority leader. Ms. Yellen is traveling to Japan on Tuesday for a gathering of finance ministers of the Group of 7 nations and will not be participating in the meeting at the White House.The Biden administration and lawmakers are under growing pressure from business groups to find a way to avoid a default.“A default would deliver a severe blow to the economy, leading to widespread job losses, decimated retirement savings and higher borrowing costs for families, businesses and the government,” said Joshua Bolten, the chief executive of the Business Roundtable. “Failing to raise the debt limit would also threaten the U.S. dollar’s central role in the global financial system to the benefit of China.”He added: “Securing a bipartisan path forward to raise the debt ceiling could not be more urgent.” More

  • 150 Shares149 Views

    in Economy

    U.S. Could Default on Debt as Early as Summer, New Estimate Says

    by

    The Bipartisan Policy Center said the nation could run out of cash this summer or early fall if Congress did not raise the debt limit.WASHINGTON — The United States faces a default sometime this summer or early fall if Congress does not raise or suspend the debt ceiling, a Washington think tank warned on Wednesday.The projection from the Bipartisan Policy Center is the latest estimate of when the government could run out of cash to pay its bills. The nation, which borrows huge sums to help pay for everything from military salaries to Social Security benefits, hit its $31.4 trillion borrowing cap on Jan. 19. Since then, the Treasury Department has been employing what are known as extraordinary measures to ensure that the government has enough to pay what it owes, including payments to bondholders.“We anticipate that those emergency measures, as well as the cash that Treasury has on hand, will most likely be exhausted at some point during the summer or early fall,” Shai Akabas, the center’s director of economic policy, said during a briefing on Wednesday morning.Last week, the nonpartisan Congressional Budget Office projected that the department’s ability to prevent the United States from defaulting on its debt could be exhausted between July and September. That estimate was slightly more favorable than what Treasury Secretary Janet L. Yellen suggested when she told Congress last month that her department’s ability to keep financing the country’s obligations could be exhausted in June.The day when the United States runs out of cash — known as the X date — depends largely on how much the Treasury Department collects in 2022 tax revenue, the Bipartisan Policy Center said. The group warned that moment could be “too close for comfort” given the vagaries around tax receipts.“There is a possibility that the cash balance in early to mid-June will be so low that it will necessitate action,” Mr. Akabas said. He added that given “the considerable uncertainty in our nation’s current economic outlook,” it was impossible to know for certain when the X date might happen.“Policymakers have an opportunity now to inject certainty into the U.S. and global economy by beginning, in earnest, bipartisan negotiations around our nation’s fiscal health and taking action to uphold the full faith and credit of the United States well before the X date,” he said.Ms. Yellen’s extraordinary measures to keep the government running have included redeeming some existing investments and suspending new investments in the Civil Service Retirement and Disability Fund and the Postal Service Retiree Health Benefits Fund. Once those measures are exhausted, the United States will need to borrow more money or face default. She has urged Congress to raise or suspend the debt limit.It remains unclear how quick or easy it would be to do that. Republican lawmakers have insisted that President Biden agree to undefined spending cuts to win their votes to raise the cap, arguing that the borrowing binge is putting the United States on a path to fiscal disaster. Mr. Biden has insisted that he will not negotiate spending cuts as part of any debt limit legislation, saying that the cap has to be raised to fund obligations that Congress — including Republicans — have already approved. More

  • 113 Shares149 Views

    in Economy

    Debt Ceiling Window Is Narrowing, Bipartisan Policy Center Warns

    by

    The United States faces a default sometime between Dec. 21 and Jan. 28 if Congress does not act to raise or suspend the debt ceiling, a Washington think tank warned on Friday.The projection from the think tank, the Bipartisan Policy Center, was a narrower window than it provided last month, and the nonpartisan group suggested that the actual deadline, or X-date, could be toward the earlier end of that range.Democrats and Republicans appear to have tempered their tone around raising the debt limit this time around. While lawmakers have not settled on a path to lifting the borrowing cap, they are exploring a series of ways to raise it, including some that could ultimately hand more power to the White House to avoid the kind of standoffs that have routinely crippled Washington.Republicans continue to publicly insist that Democrats must act alone to address the issue, while Democrats have countered that raising the borrowing cap is a shared responsibility given that both political parties have incurred big debts over the last several years.“Those who believe the debt limit can safely be pushed to the back of the December legislative pileup are misinformed,” said Shai Akabas, the director of economic policy at the Bipartisan Policy Center. “Congress would be flirting with financial disaster if it leaves for the holiday recess without addressing the debt limit.”Treasury Secretary Janet L. Yellen warned lawmakers in November that the United States could be unable to pay its bills soon after Dec. 15. During testimony before the Senate Banking Committee this week, she underscored the urgency of the matter.“I cannot overstate how critical it is that Congress address this issue,” Ms. Yellen said. “America must pay its bills on time and in full. If we do not, we will eviscerate our current recovery.”In September, Ms. Yellen called for the debt limit to be eliminated, explaining that it had become a destructive policy that posed unnecessary risks to the economy. After approaching the first default in American history, Congress in October raised the statutory debt limit by $480 billion, an amount the Treasury Department estimated would allow the government to continue borrowing through early December.Congressional leaders have been quietly discussing ways to address the debt ceiling, after Republicans warned that they would not help Democrats clear the 60-vote threshold needed to break a Republican filibuster against legislation to raise the borrowing cap.Senators Chuck Schumer of New York, the majority leader, and Mitch McConnell of Kentucky, the minority leader, have spoken repeatedly in recent weeks about the issue, but they have remained tight-lipped in public about a possible solution.The debate has been further complicated by former President Donald J. Trump and his continued influence over the Republican Party. He has repeatedly railed at Mr. McConnell and the other Republican senators who backed a procedural vote in October that cleared the way for Democrats to raise the debt limit.But Mr. McConnell, while pushing for Democrats to raise the borrowing cap without help from his conference, pledged this week that a default would be avoided.Senators Chuck Schumer of New York, second from left, and Mitch McConnell of Kentucky, center, have spoken repeatedly in recent weeks about the debt ceiling.Al Drago for The New York Times“Let me assure everyone the government will not default, as it never has,” Mr. McConnell said on Tuesday. Pressed further, he added, “We’re having useful discussions about the way forward.”Cut out of both the $1.9 trillion coronavirus relief package that passed in March and the $2.2 trillion climate, tax and spending plan that Democrats are trying to push through the Senate, Republicans have refused to help Democrats accommodate debt incurred by both parties. They have taken that position even though leaders of both parties signed off on the spending that helped the debt balloon.Democrats, in turn, have balked at a Republican demand to use a fast-track process known as budget reconciliation to raise the debt limit without Republican votes. Democrats used the process to pass the coronavirus relief package and they are using it again for the climate, tax and spending plan, but they have argued that Republicans should help keep the government from defaulting.Understand the U.S. Debt CeilingCard 1 of 6What is the debt ceiling? More

  • 125 Shares149 Views

    in Economy

    Treasury's Janet Yellen Is Being Tested by Debt Limit Fight

    by

    The Treasury secretary must wade into a standoff between Democrats and Republicans over raising the debt limit.WASHINGTON — When Janet L. Yellen was Federal Reserve chair in 2014, she faced a grilling from Republicans about whether the federal government had a plan if the nation’s borrowing limit was breached and measures to keep paying the country’s bills were exhausted.Ms. Yellen, appearing at a congressional hearing, outlined a dire scenario in which financial institutions might try to make payments that they could not cover, because the Treasury Department was out of money, leading to a cascade of bounced checks. She pushed back against the notion held by some Republicans that an economic meltdown could be averted, warning that there was no secret contingency plan.“To the best of my knowledge, there is no written-down plan,” Ms. Yellen said at the time, adding that it was beyond her remit at the Fed. “That’s a matter that is entirely up to the Treasury.”Fending off such a calamity is now squarely the responsibility of Ms. Yellen, who is confronting the biggest test she has faced in her eight months as President Biden’s Treasury secretary. Mr. Biden chose Ms. Yellen to help steer the economy out of the pandemic downturn. But in the face of congressional dysfunction, she has been thrust into a political role, trying to convince reticent Republican lawmakers that their refusal to lift the debt cap — which limits the government’s ability to borrow money — could lead to a financial collapse.It is not a comfortable spot for Ms. Yellen, an economist by training who is now trying to navigate the rough political waters that she tends to avoid by countering legislative gamesmanship with economic logic.Over the past month, Ms. Yellen has reached out to Democrats and top Republican leaders, including Senator Mitch McConnell of Kentucky, the minority leader, and Representative Kevin Brady of Texas, the top Republican on the Ways and Means Committee. She has used those calls to convey the economic risks, warning that the Treasury’s ability to stave off default is limited and that failure to lift or suspend the debt cap by sometime next month would be “catastrophic.”Ms. Yellen has reminded Republicans in the calls that they have been willing to join Democrats in lifting the debt ceiling in the past, and that raising the cap allows the U.S. to pay its existing bills and does not authorize new spending.Thus far, Republicans seem unmoved by Ms. Yellen’s overtures.In a call with Ms. Yellen last week, Mr. Brady said he told the secretary that he would be happy to work with her on a bipartisan framework focused on financial stability and curbing government spending but, barring that, Democrats should not expect Republicans to help them address the debt limit.“They are playing a dangerous political game with our economy and it’s absolutely unnecessary,” Mr. Brady said on Wednesday.Mr. McConnell conveyed a similar message during a telephone conversation with Ms. Yellen last week, his spokesman said. Mr. McConnell’s former chief of staff, Brian McGuire, said the Kentucky Republican would not be persuaded by pressure tactics and suggested that the Treasury secretary should direct her economic warnings at Democrats.“If I were advising Secretary Yellen, I’d suggest she be highly skeptical of the Democratic strategy on the debt limit,” said Mr. McGuire, who was Treasury’s assistant secretary for legislative affairs from 2019 to 2020.On Thursday, Ms. Yellen appeared at a news conference with Speaker Nancy Pelosi of California and Senator Chuck Schumer of New York, the majority leader. Ms. Pelosi assailed Republicans for refusing to join Democrats in covering costs that both parties have incurred, including the $1.5 trillion tax cuts that Republicans passed during the Trump administration.“This is a credit-card bill that we owe,” Ms. Pelosi said.Democrats wanted to pair the federal debt limit increase with legislation to keep the government funded through early December, which would require Republican support in the Senate. With no such agreement in sight, the White House’s Office of Management and Budget on Thursday alerted federal agencies to review their shutdown plans, given funding is scheduled to lapse next week.Democrats do have another legislative option for raising the borrowing cap — they could pair it with the $3.5 trillion spending bill that they are aiming to pass along party lines using a fast-track process known as budget reconciliation. However, that would impose procedural hurdles they are trying to avoid, and Democrats have yet to agree on what the spending bill should include or how to pay for it. Party leaders claimed progress toward a deal on Thursday, saying they had agreed upon an array of possible ways to pay for it. But they offered no details about what programs would be included or what the total cost would eventually be, and what they called a “framework agreement” appeared to be modest.With the debt limit increase becoming so contentious, Ms. Pelosi signaled for the first time on Thursday that Democrats could ultimately strip it from the government funding bill because of Republican opposition.“We will keep our government open by Sept. 30, which is our date, and continue the conversation about the debt ceiling, but not for long,” she said.Ms. Yellen, who has kept a low public profile in the last month, did not make a statement at the news conference and took no questions.In private, she has tried to amp up the pressure. Ms. Yellen has personally warned the chief executives of the nation’s largest banks and financial institutions about the very real risk of default. Over the past several days she has spoken to Jamie Dimon of JPMorgan Chase, David M. Solomon of Goldman Sachs, Brian T. Moynihan of Bank of America and Laurence D. Fink of BlackRock, telling them about the disastrous impact a default would have, according to people familiar with the calls.The banking industry traditionally wields significant influence with Republicans; the biggest financial services lobbying groups wrote a letter to top lawmakers earlier this month urging them to take action.“Any default would negatively impact the general economy, disrupt the operations of our financial markets, undermine confidence, and raise funding costs in the future,” they wrote.Ms. Yellen has also sought the counsel of her predecessors, including Steven T. Mnuchin, Jacob J. Lew, Timothy F. Geithner and Henry M. Paulson. Mr. Paulson, who served under President George W. Bush and maintains strong ties with Republican lawmakers, has echoed Ms. Yellen’s concerns about the impact of a default in conversations with Mr. McConnell, according to a person familiar with the matter.Earlier this week, six former Treasury secretaries sent a letter to top lawmakers, warning that a default would blunt economic growth, roil financial markets and sap confidence in the United States.“Failing to address the debt limit, and allowing an unprecedented default, could cause serious economic and national security harm,” they wrote in the letter that was published by Ms. Yellen’s Treasury Department.Ms. Yellen’s task has been complicated by the fact that while she can readily convey the economic risks of default, the debt limit has become wrapped up in a larger partisan battle over Mr. Biden’s entire agenda, including the $3.5 trillion spending bill.Republicans, including Mr. McConnell, have insisted that if Democrats want to pass a big spending bill, then they should bear responsibility for raising the borrowing limit. Democrats call that position nonsense, noting that the debt limit needs to be raised because of spending that lawmakers, including Republicans, have already approved.“This seems to be some sort of high-stakes partisan poker on Capitol Hill, and that’s not what her background is,” said David Wessel, a senior economic fellow at the Brookings Institution who worked with Ms. Yellen at Brookings.While lawmakers squabble on Capitol Hill, Ms. Yellen’s team at Treasury has been trying to buy as much time as possible. After a two-year suspension of the statutory debt limit expired at the end of July, Ms. Yellen has been employing an array of fiscal accounting tools known as “extraordinary measures” to stave off a default.Uncertainty over the debt limit has yet to spook markets, but Ms. Yellen is receiving briefings multiple times a week by career staff on the state of the nation’s finances. They are keeping her informed about the use of extraordinary measures, such as suspending investments of the Exchange Stabilization Fund and suspending the issuing of new securities for the Civil Service Retirement and Disability Fund, and carefully reviewing Treasury’s cash balance. Because corporate tax receipts are coming in stronger than expected, the debt limit might not be breached until mid- to late October, Ms. Yellen has told lawmakers.A Treasury spokeswoman said that Ms. Yellen is not considering fallback plans such as prioritizing debt payments if Congress fails to act, explaining that the only way for the government to address the debt ceiling is for lawmakers to raise or suspend the limit. However, she has reviewed some of the ideas that were developed by Treasury during the debt limit standoff of 2011, when partisan brinkmanship brought the nation to the cusp of default.A new report from the Bipartisan Policy Center underscored the fact that if Congress fails to address the debt limit, Ms. Yellen will be left with no good options. If the true deadline is Oct. 15, for example, the Treasury Department would be approximately $265 billion short of paying all of its bills through mid-November. About 40 percent of the funds that are owed would go unpaid.“Realistically, on a day-to-day basis, fulfilling all payments for important and popular programs would quickly become impossible,” the report said, pointing to Social Security, Medicare, Medicaid, defense, and military active duty pay.Tony Fratto, a Treasury official during the Bush administration, lamented that Ms. Yellen is operating without any leverage. Democrats, he said, appeared to have miscalculated when they thought that Republicans would be too ashamed to block a debt limit vote after supporting a suspension of the borrowing cap when President Donald J. Trump was in office.“I think that was in the ‘hope’ category,” Mr. Fratto said. “This is Washington in 2021 — your hopes will be dashed.”Lananh Nguyen More