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

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    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

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    Is the Debt Limit Constitutional? Biden Aides Are Debating It.

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    As the government heads toward a possible default on its debt as soon as next month, officials are entertaining a legal theory that previous administrations ruled out.A standoff between House Republicans and President Biden over raising the nation’s borrowing limit has administration officials debating what to do if the government runs out of cash to pay its bills, including one option that previous administrations had deemed unthinkable.That option is effectively a constitutional challenge to the debt limit. Under the theory, the government would be required by the 14th Amendment to continue issuing new debt to pay bondholders, Social Security recipients, government employees and others, even if Congress fails to lift the limit before the so-called X-date.That theory rests on the 14th Amendment clause stating that “the validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned.”Some legal scholars contend that language overrides the statutory borrowing limit, which currently caps federal debt at $31.4 trillion and requires congressional approval to raise or lift.Top economic and legal officials at the White House, the Treasury Department and the Justice Department have made that theory a subject of intense and unresolved debate in recent months, according to several people familiar with the discussions.It is unclear whether President Biden would support such a move, which would have serious ramifications for the economy and almost undoubtedly elicit legal challenges from Republicans. Continuing to issue debt in that situation would avoid an immediate disruption in consumer demand by maintaining government payments, but borrowing costs are likely to soar, at least temporarily.Still, the debate is taking on new urgency as the United States inches closer to default. Treasury Secretary Janet L. Yellen warned on Monday that the government could run out of cash as soon as June 1 if the borrowing cap is not lifted.Mr. Biden is set to meet with Speaker Kevin McCarthy of California at the White House on May 9 to discuss fiscal policy, along with other top congressional leaders from both parties. The president’s invitation was spurred by the accelerated warning of the arrival of the X-date.But it remains unclear what type of compromise may be reached in time to avoid a default. House Republicans have refused to raise or suspend the debt ceiling unless Mr. Biden accepts spending cuts, fossil fuel supports and a repeal of Democratic climate policies, contained in a bill that narrowly cleared the chamber last week.Mr. Biden has said Congress must raise the limit without conditions, though he has also said he is open to separate discussions about the nation’s fiscal path.A White House spokesman declined to comment on Tuesday.A group of legal scholars and some liberal activists have pushed the constitutional challenge to the borrowing limit for more than a decade. No previous administration has taken it up. Lawyers at the White House and the Justice and Treasury Departments have never issued formal opinions on the question. And legal scholars disagree about the constitutionality of such a move.“The Constitution’s text bars the federal government from defaulting on the debt — even a little, even for a short while,” Garrett Epps, a constitutional scholar at the University of Oregon’s law school, wrote in November. “There’s a case to be made that if Congress decides to default on the debt, the president has the power and the obligation to pay it without congressional permission, even if that requires borrowing more money to do so.”Other legal scholars say the limit is constitutional. “The statute is a necessary component of Congress’s power to borrow and has proved capable of serving as a useful catalyst for budgetary reform aimed at debt reduction,” Anita S. Krishnakumar, a Georgetown University law professor, wrote in a 2005 law review article.The president has repeatedly said it is the job of Congress to raise the limit to avoid an economically catastrophic default.Top officials, including Ms. Yellen and the White House press secretary, Karine Jean-Pierre, have sidestepped questions about whether they believe the Constitution would compel the government to continue borrowing to pay its bills after the X-date.ABC News asked Ms. Yellen amid a debt-ceiling standoff in 2021 if she would invoke the 14th Amendment to resolve it.“It’s Congress’s responsibility to show that they have the determination to pay the bills that the government amasses,” she said. “We shouldn’t be in a position where we need to consider whether or not the 14th Amendment applies. That’s a disastrous situation that the country shouldn’t be in.”The government reached the borrowing limit on Jan. 19, but Treasury officials deployed what are known as extraordinary measures to continue paying bills on time. The measures, which are essentially accounting maneuvers, are set to run out sometime in the next few months, possibly as soon as June 1. The government would default on its debt if Treasury stopped paying all bills. Economists have warned that could lead to financial crisis and recession.Progressive groups have encouraged Mr. Biden to take actions meant to circumvent Congress on the debt limit and continue uninterrupted spending, like minting a $1 trillion coin to deposit with the Federal Reserve. Internally, administration officials have rejected most of them. Publicly, Biden aides have said the only way to avert a crisis is for Congress to act.“I know you probably get tired of me saying this from here over and over again, but it is true,” Ms. Jean-Pierre said on Thursday, after referring a question about the 14th Amendment to the Treasury Department. “It is their constitutional duty to get this done.”But inside the administration, it remains an open question what Treasury would do if Congress does not raise the limit in time — because, many officials say, the law is unclear and so is the Constitution, which gives Congress the power to tax and spend.Officials who support invoking the 14th Amendment and continuing to issue new debt contend the government would be exposed to lawsuits either way. If it fails to continue paying its bills after the X-date, it could be sued by anyone who is not paid on time in the event of a default.Other officials have argued that the statutory borrowing limit is binding, and that an attempt to ignore it would draw an immediate legal challenge that would most likely rise quickly to the Supreme Court.There is a broad consensus on both sides of the debate that the move risks roiling financial markets. It is likely to cause a surge in short-term borrowing costs because investors would demand a premium to buy debt that could be invalidated by a court.The Moody’s Analytics economist Mark Zandi modeled such a situation this year and found it would create short-term economic damage but long-term gains if courts upheld the constitutional interpretation — by removing the threat of future brinkmanship over the limit.“The extraordinary uncertainty created by the constitutional crisis leads to a sell-off in financial markets until the Supreme Court rules,” Mr. Zandi wrote in March. Economic growth and job creation would be dampened briefly, he added, “but the economy avoids a recession and quickly rebounds.”Obama administration officials considered — and quickly discarded — the constitutional theory when Republicans refused to raise the limit in 2011 unless the president agreed to spending cuts. Treasury lawyers never issued a formal opinion on the question, and they have not yet this year, department officials said this week.But in a letter to the editor of The New York Times in 2011, George W. Madison, who was Treasury’s general counsel at the time, suggested that department officials did not subscribe to the theory. He was directly challenging an assertion by the constitutional law professor Laurence H. Tribe, who wrote in an opinion essay in The Times that Treasury Secretary Timothy F. Geithner had pushed to embrace the 14th Amendment interpretation, which Mr. Tribe opposed.“Like every previous secretary of the Treasury who has confronted the question,” Mr. Madison wrote, “Secretary Geithner has always viewed the debt limit as a binding legal constraint that can only be raised by Congress.” More

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    Why the 14th Amendment Is Being Cited in the Debt Ceiling Debate

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    Some Biden administration officials believe a constitutional clause prevents the United States from failing to make payments even if it means breaching the debt limit.WASHINGTON — Faced with an impasse over raising or suspending the nation’s debt limit, some White House officials are looking to a clause in the 14th Amendment to ensure the United States does not default on its debt.The amendment, adopted after the Civil War, conferred citizenship to former slaves — and contains a more obscure section on public debt. Here is a brief history of the 14th Amendment and an explanation of its provisions, including why it’s now being talked about in the White House.What does the 14th Amendment say?Considered by historians to be a milestone for civil rights, the 14th Amendment to the Constitution extended citizenship to former slaves. It also guaranteed that the right to due process and equal protection under the law applied to both federal and state governments.The expansive amendment is the most cited amendment in lawsuits, according to the Library of Congress.Section 1 of the amendment established that “all persons born or naturalized in the United States, and subject to the jurisdiction thereof, are citizens of the United States and of the state wherein they reside” and that “no state shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States.”Another provision, known as the Disqualification Clause, was more obscure until the events of Jan. 6, 2021. Some have argued that the clause, outlined in Section 3 of the 14th Amendment, bars anyone who has “engaged in insurrection or rebellion” from holding public office.Now, the standoff over the national debt has renewed debate over Section 4 of the amendment, known as the public debt clause.What spurred its adoption?After the Civil War and the assassination of President Abraham Lincoln, lawmakers sought to set out the terms of the Confederacy’s surrender and the rebellious states’ re-entry into the Union.The 13th Amendment’s formal abolition of slavery also meant that the size of delegations from former Confederate states would increase, even as the states passed discriminatory “Black codes” and prevented former slaves from voting. Reconstructionist Republicans in Congress sought to address these issues by passing the Civil Rights Act of 1866, which guaranteed citizenship and equal protection for former slaves.Although Republicans had enough votes to override a veto by President Andrew Johnson, some remained concerned that the protections in the law were not strong or permanent enough, and began seeking a constitutional amendment.A joint committee on Reconstruction then drafted what would become the 14th Amendment, which was passed by Congress in 1866 and ratified two years later.Why does it contain a public debt clause?The 14th Amendment includes a provision that protected public debt held by the federal government, and prohibited payment of debt held by the Confederate states.“The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned,” the clause reads.That section, historians say, was added because of fears that if former Confederate states were to regain political power in Congress, lawmakers might repudiate federal debts and guarantee Confederate debt. Reconstructionist Republicans also thought that the clause would discourage loans to future insurrectionists.“Southerners were used to having their way in Congress — they had dominated the institution from 1787 until secession in 1861 — and many believed that when their representatives arrived in House and Senate, they would be able to tear up the nation’s i.o.u.s. Section 4 was the response,” Garrett Epps, a legal scholar, has previously written.Why is it being discussed today?Some legal scholars contend that the public debt clause overrides the statutory borrowing limit, which is set by Congress and can be lifted or suspended only with lawmaker approval.The United States hit that cap on Jan. 19 and on Monday, Treasury Secretary Janet L. Yellen warned that the federal government could run out of cash to pay its bills by June 1 unless it was able to borrow more money.The Biden administration is discussing whether the 14th Amendment compels the government to continue issuing new debt to pay bondholders, along with Social Security recipients, military personnel and others, even if Congress fails to lift the limit before the so-called X-date. More

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    Everything You Need to Know About the Debt Ceiling

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    Congress controls how much money the United States can borrow. Here’s a look at why that is and what it means.Washington is heading for another big fight over whether to raise or suspend the nation’s debt limit, which caps the amount of money the federal government can borrow to pay its bills.This year is shaping up to be the messiest fight in at least a decade. Republicans are demanding that an increase in the borrowing limit be accompanied by spending cuts and other cost savings. President Biden has said he will oppose any attempt to tie spending cuts to raising the debt ceiling, increasing the likelihood of a protracted standoff.The president is set to meet with Republican and Democratic leaders at the White House on May 9 to discuss a path forward. But it is still unclear how quickly lawmakers will act to raise the nation’s borrowing cap.Here is what you need to know about the debt limit and what happens if no deal can be reached:What is the debt limit?The debt limit is a cap on the total amount of money that the United States is authorized to borrow to fund the government and meet its financial obligations.Because the federal government runs budget deficits — meaning it spends more than it brings in through taxes and other revenue — it must borrow huge sums of money to pay its bills. Those obligations include funding for social safety net programs, interest on the national debt and salaries for members of the armed forces.Approaching the debt ceiling often elicits calls by lawmakers to cut back on government spending. But lifting the debt limit does not actually authorize any new spending — in fact, it simply allows the United States to spend money on programs that have already been authorized by Congress.When was the debt limit reached?The United States officially hit its debt limit on Jan. 19, prompting the Treasury Department to use accounting maneuvers known as extraordinary measures to continue paying the government’s obligations and avoid a default. Those measures temporarily curb certain government investments so that the bills can continue to be paid.The ability to use those measures to delay a default could be exhausted by June. Treasury Secretary Janet L. Yellen on Monday warned lawmakers that the United States could run out of cash by June 1 if the borrowing cap isn’t raised or suspended.How much debt does the United States have?The national debt crossed $31 trillion for the first time last year. The borrowing cap is set at $31.381 trillion.Why does the United States have a debt limit?According to the Constitution, Congress must authorize government borrowing. In the early 20th century, the debt limit was instituted so that the Treasury would not need to ask Congress for permission each time it had to issue debt to pay bills.During World War I, Congress passed the Second Liberty Bond Act of 1917 to give the Treasury more flexibility to issue debt and manage federal finances. The debt limit started to take its current shape in 1939, when Congress consolidated different limits that had been set on different types of bonds into a single borrowing cap. At the time, the limit was set to $45 billion.While the debt limit was created to make government run more smoothly, many policymakers believe that it has become more trouble than it’s worth. In 2021, Ms. Yellen said she supported abolishing the debt limit.What happens if the debt limit is not raised or suspended?If the government exhausts its extraordinary measures and runs out of cash, it would be unable to issue new debt. That means it would not have enough money to pay its bills, including interest and other payments it owes to bondholders, military salaries and benefits to retirees.No one knows exactly what would happen if the United States gets to that point, but the government could default on its debt if it is unable to make required payments to its bondholders. Economists and Wall Street analysts warn that such a scenario would be economically devastating, and could plunge the entire world into a financial crisis.Will military salaries, Social Security benefits and bondholders be paid?Various ideas have been raised to ensure that critical payments are not missed — particularly payments to the investors who hold U.S. debt. But none of these ideas have ever been tried, and it remains unclear whether the government could actually continue paying any of its bills if it can’t borrow more money.One idea that has been proposed is that the Treasury Department would prioritize certain payments to avoid defaulting on U.S. debt. In that case, the Treasury would first pay the bondholders who own U.S. Treasury debt, even if it delayed other financial obligations like government salaries or retirement benefits.So far, the Treasury seems to have ruled that out as an option. Ms. Yellen has said that such an approach would not avoid a debt “default” in the eyes of markets.“Treasury systems have all been built to pay all of our bills when they’re due and on time, and not to prioritize one form of spending over another,” Ms. Yellen told reporters earlier this year. More

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    Debt Ceiling: U.S. Could Run Out of Cash by June 1, Yellen Warns

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    President Biden said he would meet with lawmakers on May 9 to discuss ways to avoid a default.WASHINGTON — Treasury Secretary Janet L. Yellen said on Monday that the United States could run out of money to pay its bills by June 1 if Congress does not raise or suspend the debt limit, putting pressure on President Biden and lawmakers to reach a swift agreement to avoid defaulting on the nation’s debt.The more precise warning over when the United States could hit the so-called X-date dramatically reduces the projected amount of time lawmakers have to reach a deal before the government runs out of money to pay all of its bills on time.The new timeline could accelerate negotiations between the House, Senate and Mr. Biden over government spending — a high-stakes standoff between the president and the House Republicans who have refused to raise the limit without deep spending cuts attached.In response to Ms. Yellen’s new timeline, Mr. Biden on Monday called the top four leaders in Congress to ask for a meeting on May 9 to discuss fiscal issues. The president reached out to Speaker Kevin McCarthy and Representative Hakeem Jeffries of New York, the minority leader, along with Senator Chuck Schumer of New York, the majority leader, and Senator Mitch McConnell of Kentucky, the minority leader.Economists have warned that failure to raise the debt limit, which caps the total amount of money the United States can borrow, threatens to rock financial markets and throw the global economy into a financial crisis.Because the United States runs a budget deficit — meaning it spends more money than it takes in — it must borrow huge sums of money to pay its bills. In addition to paying Social Security benefits, along with salaries for the military and government workers, the United States is also required to make interest and other payments to the bondholders who own its debt.The Treasury Department had previously projected that it could run out of cash sometime in early June, but the new estimate raises the alarming prospect that the United States could be unable to make some payments, including to bondholders, in a matter of weeks.“Given the current projections, it is imperative that Congress act as soon as possible to increase or suspend the debt limit in a way that provides longer-term certainty that the government will continue to make its payments,” Ms. Yellen said in a letter to Congress.The Congressional Budget Office also warned on Monday that time was running out more quickly than previously thought. The nonpartisan budget office said tax receipts from income payments that were processed in April were smaller than it had anticipated and that future tax payments were unlikely to have much impact.“That, in combination with less-than-expected receipts through April, means that the Treasury’s extraordinary measures will be exhausted sooner than we previously projected,” Phillip Swagel, the C.B.O. director, wrote in an analysis posted on the agency’s website.White House officials had not expected the date of possible default to arrive so soon, and the accelerated timetable could scramble the president’s approach to the potential crisis.Mr. Biden has continued to insist he will not negotiate directly over the limit, saying Congress must raise the cap without conditions. The newly compressed calendar leaves little time for the president and congressional leaders to find agreement on raising the limit. Mr. McCarthy is traveling in the Middle East this week. Later this month, Mr. Biden is scheduled to attend the Group of 7 nations leaders’ summit in Japan, then travel on to Australia for a summit with the leaders of Japan, India and Australia.House Republicans passed legislation in April that would raise the debt limit in exchange for deep spending cuts and roll back recent climate legislation that Democrats passed along party lines. Mr. Biden has blasted that bill, saying it would hurt working families while benefiting the oil and gas industry, and he has accused Republicans of putting America’s economy on the line.On Monday, the president called on Republicans “to make sure the threat by the Speaker of the House to default on the national debt is off the table.”“For over 200 years, America has never, ever, ever failed to pay its debt. To put in the capital — in colloquial terms, America is not a deadbeat nation. We have never, ever failed to meet the debt,” Mr. Biden said.Republican Senators reacted to the news on Monday by emphasizing the onus was now on Mr. Biden to negotiate to avoid economic calamity.“It is very scary,” Senator Joni Ernst of Iowa and a member of Republican leadership said of the looming crisis. “President Biden needs to step it up and get to the table. Kevin McCarthy and the folks in the house, they did their part.”Some expressed optimism that the approaching deadline would force action.“Washington’s at its best when it has a deadline to respond to,” Senator Thom Tillis, Republican of North Carolina, said.Mr. Schumer and Mr. Jeffries urged Republicans to lift the limit immediately with no strings attached. “We do not have the luxury of waiting until June 1 to come together, pass a clean bill to avoid a default and prevent catastrophic consequences for our economy and millions of American families,” the lawmakers wrote in a joint statement on Monday. While there is bipartisan agreement that the nation needs to find a way to reduce the gap between when it spends and what it collects, even the most ardent supporters of fiscal reform say the debt limit must be raised.“We need to raise the debt limit as soon as possible, without drama and without serious risk of default,” said Maya MacGuineas, the president of the Committee for a Responsible Federal Budget. “To threaten default or drag one’s feet is the height of irresponsibility. Lawmakers need to commence serious discussions immediately.”The possibility of a default by June 1 could compel lawmakers to agree to a short-term increase or suspension of the debt limit to provide more time for negotiations. But even that temporary salve is far from assured given competing factions within the Republican Party.The United States technically hit its $31.4 trillion debt limit in January, forcing the Treasury Department to employ accounting maneuvers known as extraordinary measures to allow the government to keep paying its bills, including payments to bondholders who own government debt. Ms. Yellen said at the time that her powers to delay a default — in which the United States fails to make its payments on time — could be exhausted by early June. She cautioned, however, that the estimate came with considerable uncertainty.Tax receipts depend on a complicated array of factors such as the jobless rate, wages and whether taxpayers submit their returns on time. On Monday, the Treasury secretary underscored the challenges of predicting the default date, noting that the new estimate was based on currently available data that is inherently variable, such as tax payments from individuals.“The actual date that Treasury exhausts extraordinary measures could be a number of weeks later than these estimates,” Ms. Yellen said.A Treasury Department official said that, as of April 30, the government had a cash balance of about $300 billion. Ms. Yellen’s ability to delay a default will depend in part on how much tax revenue comes into the federal government this spring.Payments for the 2022 tax year are still arriving. Goldman Sachs economists projected last week that by the second week of June, the Treasury Department could have about $60 billion of cash remaining, which would allow the government to keep making its payments until late July.Some budget analysts have suggested that winter storms could complicate the Treasury Department’s ability to delay a default. Severe storms, flooding and mudslides in California, Alabama and Georgia this year prompted the Internal Revenue Service to push the April 18 filing deadline to October for dozens of counties.The I.R.S. also gave those affected areas more time to make contributions to retirement and health savings accounts, potentially affecting their taxable income.Ms. Yellen has already been taking steps to ensure that the federal government has sufficient cash on hand.Earlier this year, she announced that she would redeem some existing investments and suspend new investments in the Civil Service Retirement and Disability Fund and the Postal Service Retiree Health Benefits Fund.Ms. Yellen said on Monday that the Treasury Department was suspending the issuance of State and Local Government Series Treasury securities to help manage the risks associated with the debt limit. She lamented that the move would deprive state and local governments of an important tool to manage their finances.Brinkmanship over the debt limit has revived debates over how far the executive branch can go to avoid a default. Ms. Yellen, however, has dismissed the notion that she could prioritize certain payments or mint a platinum coin worth $1 trillion to ensure that the United States remains solvent.Although markets have broadly remained calm about the prospect of a default, there are some signs that investors are becoming nervous.They have sold government bonds that mature in three months — around the time policymakers have said the United States could run out of cash — and snapped up bonds with just one month until they are repaid.The cost of insuring existing bond holdings against the possibility that the United States will default on its debts has also risen sharply. Still, some analysts say the market reaction would need to be much more pronounced to force a fast deal.In a separate report issued by the Treasury Department on Monday about the risks facing the economy, Eric Van Nostrand, the acting assistant secretary for economic policy, laid out the dire consequences of failing to raise the debt limit.“A default by the U.S. government — including the failure to pay any of the United States’ obligations — would be an economic catastrophe, sparking a global downturn of unknown but substantial severity,” Mr. Van Nostrand said.Catie Edmondson More

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    Trickling Tax Revenue Complicates Debt Limit Talks

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    The Treasury Department’s ability to delay a default, the so-called X-date, hinges on how fast the money is coming in.WASHINGTON — A vote by House Republicans last week to lift the nation’s debt limit in exchange for deep spending cuts was the first step in what is likely to be a protracted battle over raising or suspending the borrowing cap to avoid defaulting on United States debt.But while Republicans and President Biden and his fellow Democrats are gearing up for a fight, a key question is beginning to sow unease in Washington and on Wall Street: How much time is there to strike a deal?The United States technically hit its $31.4 trillion debt limit in January, forcing the Treasury Department to employ accounting maneuvers known as extraordinary measures to allow the government to keep paying its bills, including payments to bondholders who own government debt. Treasury Secretary Janet L. Yellen said at the time that her powers to delay a default — in which the United States fails to make its payments on time — could be exhausted by early June. She cautioned, however, that the estimate came with considerable uncertainty.With June now just a few weeks away, uncertainty around the timing of when the United States will run out of cash — what’s known as the X-date — remains, and determining the true deadline could have huge consequences for the country.Tax receipts will be key to the X-date.Determining the X-date depends on a complex set of factors, but ultimately what matters most is how much money the government spends and how much it takes in through taxes and other revenue.The Bipartisan Policy Center, which tracks federal revenues, projected in February that lawmakers would need to raise or suspend the debt limit sometime between summer and early fall to avoid a default. The specific date would largely depend on how quickly tax revenues are coming into the government’s coffers.There are signs that 2022 tax receipts are trickling in too slowly for comfort. Economists at Wells Fargo wrote in a note to clients last week that because tax collections appear to be weaker than expected, there is a chance the X-date could be as soon as early June. However, they continue to believe early August is the most likely default deadline.“A low but not insignificant probability of a U.S. default is still very concerning, and we would think the last thing Treasury officials want is an X-date that sneaks up on Congress,” they wrote.Tax day payments are still arriving. Goldman Sachs economists projected last week that by the second week of June, the Treasury Department could have around $60 billion of cash remaining, which would allow the government to keep making its payments until late July.Natural disasters could fuel a debt disaster.There is a surprising factor that could cause the X-date to arrive sooner: the weather. Severe storms, flooding and mudslides in California, Alabama and Georgia this year prompted the Internal Revenue Service to push the April 18 filing deadlines in dozens of counties to October.The I.R.S. said this year that, because of the storms, individuals and businesses in the affected areas could file their returns late. They were also given more time to make contributions to retirement and health savings accounts.Farmers, who often file their tax returns by March 1, also have received a reprieve until Oct. 16, and estimated payments that normally would have been made in January were allowed to be pushed back to that date.It is not clear how much tax revenue has been delayed by the storms, but the extensions have given the Treasury Department less wiggle room to keep paying the bills.An update could come this week.The Treasury Department is expected to send a letter to Congress in the coming days with a more precise estimate of when it could start running out of cash. It could also lay out new measures intended to stave off a default. This year, Ms. Yellen announced that she would redeem some existing investments and suspend new investments in the Civil Service Retirement and Disability Fund and the Postal Service Retiree Health Benefits Fund.In a speech last week, Ms. Yellen warned that a default would have real consequences for the economy.“Household payments on mortgages, auto loans and credit cards would rise,” Ms. Yellen said in remarks to the Sacramento Metropolitan Chamber of Commerce. “And American businesses would see credit markets deteriorate.”She added, “On top of that, it is unlikely that the federal government would be able to issue payments to millions of Americans, including our military families and seniors who rely on Social Security.”Here’s what the X-date means for negotiations.As the X-date approaches, it will put more pressure on lawmakers to take action.Analysts at Beacon Policy Advisors predicted that if a default could really happen as soon as June, that would increase the likelihood that Congress will pass a short-term suspension of the debt limit through October. If the X-date is expected to hit in July, that might compel lawmakers to file legislation by early May so they have sufficient time to deal with procedural obstacles in Congress.Although markets have broadly remained calm about the prospect of a default, there are some signs that investors are becoming nervous.They have sold government bonds that mature in three months — around the time policymakers have said the United States could run out of cash — and snapped up bonds with just one month until they are repaid.The cost of insuring existing bond holdings against the possibility that the United States will default on its debts has also risen sharply. Still, analysts say the market reaction would need to be much more pronounced to force a fast deal.“This has caused some heartburn among policymakers but not enough to move the negotiating needle in a meaningful way,” the Beacon analysts wrote. “There needs to be a bigger market response and a more definitive X-date to get negotiations going in full.”That has yet to happen, however. While Mr. Biden has indicated he is open to talking with Speaker Kevin McCarthy about ways to get the nation’s fiscal situation on a better track, the two have yet to schedule a meeting after the House passage last week. More

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    Yellen to Call for ‘Constructive’ China Relationship

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    The Treasury secretary will strike a more conciliatory note in a speech Thursday, following months of escalated tensions between the world’s two largest economies.WASHINGTON — Treasury Secretary Janet L. Yellen on Thursday will call for a “constructive” and “healthy” economic relationship between the United States and China, one in which the two nations work together to confront challenges like climate change, according to excerpts from prepared remarks.Ms. Yellen’s comments, which she will deliver at Johns Hopkins University’s School of Advanced International Studies, will strike a notably positive tone about the U.S.-China relationship following months of heightened tensions between the two nations, which have the world’s largest economies.Ms. Yellen is expected to stress the importance of securing American national security interests, as well as of protecting human rights. She will also emphasize that targeted actions the United States has taken against China — like cutting it off from the world’s most advanced semiconductors — are aimed purely at protecting U.S. national security.China has criticized U.S. restrictions on its technological development, saying that they are unlawful and a blatant effort to try and weaken the Chinese economy. Ms. Yellen will seek to allay those concerns.The U.S. has imposed sweeping restrictions on selling semiconductors and chip-making equipment, such as that made by the Dutch company ASML, to China.Bryan Derballa for The New York Times“These national security actions are not designed for us to gain a competitive economic advantage, or stifle China’s economic and technological modernization,” Ms. Yellen is expected to say. “Even though these policies may have economic impacts, they are driven by straightforward national security considerations.”She also will emphasize the strength of the American economy, noting that the economic output of the United States remains far larger than China’s.Relations between the two nations have been tense recently, including a diplomatic blowup in February after a Chinese spy balloon traversed the United States before being shot down over the Atlantic Ocean. Republicans as well as Democrats continue to describe China as an obvious economic rival as well as a security threat.Tensions also remain high over the future of Taiwan, which China claims as its territory. And many American officials have lost patience with the idea of bringing China into the rules-based international system, arguing that efforts to do so in past decades had failed to adequately improve its trade practices.But Ms. Yellen will argue that competition between the United States and China can lead to mutual improvement, within certain parameters.“Sports teams perform at a higher level when they consistently face top rivals,” her prepared remarks say. “But this type of healthy competition is only sustainable if it is fair to both sides.” China has long used government support to help its firms at the expense of foreign competitors, and its industrial policy “has become more ambitious and complex,” Ms. Yellen will say. More

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    As Possible Debt Limit Crisis Nears, Wall Street Shrugs

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    Few investors have focused on the possibility that Congress will not raise the nation’s borrowing limit in time to avoid an economically catastrophic default.WASHINGTON — Speaker Kevin McCarthy chose the New York Stock Exchange on Monday to deliver his most detailed comments yet on House Republicans’ demands for raising the nation’s borrowing limit. But his comments made little impression on Wall Street, where investors continue to trade stocks and Treasury bonds under the assumption that Congress and President Biden will find a way to avoid a calamitous government default.The lack of a market panic about the talks reflects a been-there, done-that attitude that investors have increasingly taken to partisan showdowns over taxes, spending and the government’s ability to pay its bills on time, which lawmakers often resolve at the last possible moment.But there are reasons to believe that this time could play out differently, starting with the chaos in Mr. McCarthy’s caucus — and new warnings that lawmakers might have less time to raise the $31.4 trillion limit than previously thought.The next few weeks will more precisely determine how quickly the government will exhaust its ability to pay bondholders, employees, Social Security recipients and everyone else it sends money to on a regular basis. That’s because data on the government’s tax receipts for the year will come into sharper focus after Tuesday’s deadline for people to file individual income tax returns for 2022.On Tuesday, Goldman Sachs economists sounded a warning that the potential default date could be much sooner than previous forecasts — which typically pegged the date in July or August — if revenue comes in soft. “While the data are still very preliminary, weak tax collections so far in April suggest an increased probability that the debt limit deadline will be reached in the first half of June,” they wrote.Republicans are refusing to raise the borrowing cap unless Mr. Biden agrees to reduce government spending and slow the growth of the national debt, a position that risks plunging the United States into recession if the Treasury Department runs out of money to pay all its bills on time. But Mr. McCarthy has struggled to unite his Republicans around specific cuts, even though he said Monday that he will put such a plan on the House floor next week.Moderates in the Republican caucus are wary of deep cuts to popular domestic programs, like education and national parks, that would be spurred by his proposal to cap domestic spending growth at a level well below the current inflation rate. Fiscal hawks, including a faction that resisted Mr. McCarthy’s appointment as speaker and could effectively force a vote to oust him at any time, have pushed for far more aggressive reductions. They include lawmakers who have never voted to raise or suspend the debt limit, even under President Donald J. Trump, who signed three suspensions of the limit into law.Mr. McCarthy detailed his plan to fellow Republicans on Tuesday. As outlined on Monday, it would raise the limit for about a year. It would also return most domestic spending to fiscal year 2022 levels and cap its growth over a decade. Mr. McCarthy also wants to add work requirements for recipients of federal food assistance and reduce federal regulations on fossil fuel development and other projects, which he says will increase economic growth.It is unclear if enough Republicans would vote for that package to ensure its passage in the House. Senate Democrats would almost certainly reject it, as would Mr. Biden, who has said repeatedly that he expects Congress to raise the borrowing limit with no strings attached.Mr. Biden has shown no indication that he will intervene to speed up discussions over raising the limit, or seek to broker any deals in Congress to do so. The president has said he will negotiate taxes and spending levels separately from the borrowing limit. But he and his aides are refusing to engage further with Mr. McCarthy on fiscal policy until Republicans rally around a budget plan.Mr. Biden slammed Mr. McCarthy’s plan in a speech on Tuesday, saying he has “proposed huge cuts to important programs that millions of Americans count on.” Mr. Biden said that Mr. McCarthy had “threatened to become the first speaker to default on our debt unless he gets the cuts he wants.”The only market thus far to reflect stress about the debt limit is the one most attuned to it: credit default swaps, which price the risk of the government failing to make scheduled payments to bondholders. Mr. McCarthy shrugged off that stress in a question-and-answer session after his speech on Monday.“Markets go up and down,” he said.Stock and bond markets were unfazed after Mr. McCarthy’s comments. They have in recent months been far more reactive to any evidence about what the Federal Reserve will do next in its campaign to tame high inflation by raising interest rates.Some White House officials privately say they expect Republicans to step up their efforts to raise the limit if and when investors begin to worry more about negotiations. That’s what happened in 2011, when a showdown between congressional Republicans and President Barack Obama nearly ended in default. Stocks plunged, and borrowing costs rose for corporations and home buyers. The damage took months to repair.Some Republicans are similarly hopeful that a wake-up on Wall Street will push Mr. Biden to change his negotiating stance, including Representative Patrick McHenry of North Carolina, the chairman of the House Financial Services Committee.“I don’t think market participants have any idea of how bad off these negotiations are right now, which should give them pause and concern, and actually should bring the president to the table,” he said.Catie Edmondson More