Big Banks Say Debt Ceiling Limit Could Hit by Mid-June

With all the other issues facing the country and the federal government, the pernicious debt ceiling limit is one that cannot go away and, without solution, will subsume all the others.

And even as different groups in Congress finally show proposals while President Joe Biden says no conditional deals, some big banks are saying that the clock may run out by mid-June at the latest. Given the pace at which legislation moves, that doesn’t realistically offer much time to pass a deal.

The Treasury Department started taking “extraordinary measures” in mid-January as by then the federal government already had reached the statutory $31.81 trillion debt limit. That was for existing debt, not new debt. Pandemic aid and the 2017 Tax Cuts and Jobs bill ran up trillions of dollars in additional debt.

In January, the estimate was that the government’s ability to take accounting measures to avoid a technical default would end sometime in June, although the Congressional Budget Office in February said the debt ceiling breach would happen “between July and September 2023.” Now Goldman Sachs analysts are pegging the “X-date” — which might as well be called the new D-Day for Default Day — as happening in the first half of June, according to a Reuters report. The Treasury is now saying the axe could fall as early as June 5.

U.S. House of Representatives Speaker Kevin McCarthy has said there would have to be budget cuts before an increase of the debt ceiling, and he had already taken off the table Social Security, Medicare, and defense. Biden continues to insist that there can be no deal with strings.

The Problem Solvers Caucus, 64 House members split evenly between Democrats and Republicans, have been working on alternative plans, both short- and longer-term, and announced a framework on Wednesday.

One complication is an apparent lack of pressure from Wall Street, according to a New York Times story. “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,” the report said. “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.”

There is one slight sliver of optimism should a default happen. The Fed is dusting off its playbook on how it can support the economy, according to an analysis by Axios. Some of the more extreme measures that the Fed admittedly would be loath to implement include purchasing Treasury securities that are in technical default, essentially enabling the U.S. government to keep financing its debt or swapping  the good Treasury securities on its books for the bad ones.

If the U.S. were to default for the first time in history, experts aren’t sure exactly what the result would be, other than generally agreeing that it would be extremely bad. It could radically affect interest rates, willingness of investors to put money into the U.S., affect international trade, and set off a global financial crisis.