The U.S. is running out of money. Indeed, the Treasury Department has essentially been paying off all the country’s bills since it went past the spending limit in January. Unfortunately, the Treasury only has so much money to continue staving off a government default. As economists everywhere await yet another debt extension via legislation, the question on everyone’s mind is: When will the Treasury run out of money?
Well, depending on who you ask, the answer is as early as this month or as late as September. The Treasury’s “extraordinary measures” power essentially gives the country’s purse the ability to pay down debt payments in situations exactly like this.
The Treasury Department is quickly burning through its roughly $500 billion cash balance in maintenance of the country’s debt. If you recall, in 2021 there was a similar debt limit standoff. During that time, the Treasury came dangerously close to reaching a $0 cash balance.
According to Treasury Secretary Janet Yellen, the country may have only until June 1 until it exhausts its emergency funding. June 1 is therefore the so-called “X-date.” That said, in a letter to Congress, Yellen acknowledged that with the information currently available, the Treasury is “not currently able to provide an estimate of how long extraordinary measures will enable us to continue to pay the government’s obligations.”
When Will the Treasury Run Out of Money?
The Bipartisan Policy Center, a think tank that follows the country’s cash reserves, issued a warning earlier this week that the X-date would likely arrive between June and August. However, it also said financial stressors would appear well before the Treasury officially becomes unable to meet the country’s financial dues.
“The coming weeks are critical for assessing the strength of government cash flows,” Shai Akabas, the Director of Economic Policy at the Bipartisan Policy Center, told the New York Times. “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.”
The Treasury is currently the sole stopgap from a U.S. default. Should the Treasury run out of money before the debt limit is raised, credit raters may downgrade the country’s credit rating. Most economists agree this would likely prove disastrous for financial markets even beyond the U.S.
Currently, the future of the U.S. economy is largely in the hands of the country’s politicians. In that regard, whether the U.S. defaults depends on whether Republicans can come to a mutual agreement with President Joe Biden’s administration before the Treasury falls short of its payment schedule.
House Republicans are at odds with President Biden over the terms of a debt-ceiling raise. The GOP wants to install spending caps and make other broad changes to President Biden’s domestic goals. In exchange, they would raise the debt ceiling via legislation. So far, Biden has largely refused to these terms.
On the date of publication, Shrey Dua did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
