The U.S. government could run out of cash to pays its bills by mid-October, according to a new analysis from a Washington think tank, and economists warn the unprecedented debt default could trigger a financial crisis.
The forecast from the Bipartisan Policy Center shows the "X Date" – the day when Treasury Secretary Janet Yellen runs out of maneuvering room to prevent the U.S. from broaching the debt ceiling – will take place sometime between Oct. 15 and Nov. 4.
"New data demonstrate that Congress has only weeks to address the debt limit," Shai Akabas, director of economic policy at the Bipartisan Policy Center, said in a statement. "If they don’t, the U.S. government risks missing or delaying critical bills that will come due in mid-October that millions of Americans rely on, from military paychecks and retirement benefits to advanced child tax credit payments."
The U.S. has never defaulted on its debt before, although it came close in 2011 when House Republicans refused to pass a debt-ceiling increase, prompting rating agency Standard and Poor's to downgrade the U.S. debt rating one notch.
If the U.S. failed to raise or suspend the debt limit, it would eventually have to temporarily default on some of its obligations, which could have serious and negative economic implications. Interest rates would likely spike, and demand for Treasurys would drop; even the threat of default can cause borrowing costs to increase.
Once the U.S. runs out of money, Treasury would be unable to meet about 40% of all payments due in the several weeks that follow, according to the analysis.
"How Treasury would operate in such an environment is unclear," it said. "Prioritization and delayed payments are two possibilities, but substantial uncertainty exists about operationalizing them."
The Treasury Department began implementing so-called extraordinary measures to keep the government running after the debt limit was reinstated in August around $22 trillion – about $6 trillion less than the actual level. Yellen has told Congress the federal government will run out of cash to pays its bills sometime in October.
The battle to raise the government's borrowing limit carries big risks for state and local officials: With the total debt standing at $28.5 trillion, the government would be forced to slash federal programs unless the cap is either suspended or lifted.
But lawmakers are at a stalemate over the debt ceiling: Democrats are pressuring Republicans to support an effort to raise or suspend the ceiling, adamant that they won't stick it in a partisan $3.5 trillion spending bill. But Senate Minority Leader Mitch McConnell has rejected an appeal by Yellen to raise the ceiling, arguing that Democrats have the ability to go it alone.