Federal government still faces debt debt ceiling later this month
Dec. 06, 2021 5:24 PM ETBy: Liz Kiesche, SA News Editor1 Comment
- While both chambers of Congress passed a stopgap funding bill before the deadline on Dec. 3, the so-called debt ceiling hasn't been resolved.
- The Treasury Department could run out of money as soon as Dec. 15, Treasury Secretary Janet Yellen has said. If Congress doesn't address that issue then people and institutions that are relying on government payments will be affected.
- The Bipartisan Policy Center recently issued a 2021 Debt Limit Analysis. "After running out of cash, Treasury will be unable to meet approximately 35% of all payments due in the several weeks that follow," the analysis said.
- "Ongoing risks include increasing costs to taxpayers, delayed payments to individuals and businesses, and potentially catastrophic market impacts if congressional inaction to raise the debt limit causes the U.S. government to default on its debt (unprecedented in modern history)," it added.
- BPC estimates that sometime between Dec. 21, 2021 and Jan. 28, 2022 the Treasury will only be able to make payments from incoming cash flows, which wouldn't be enough to cover all government spending.
- When that time comes, known as the "X Date", the Treasury might prioritize payments or make full days' worth of payments once it gets sufficient revenue to cover all of a day's obligations.
- "Realistically, on a day-to-day basis, fulfilling all payments for important and popular programs (e.g., Social Security, Medicare, Medicaid, defense, military active duty pay) would quickly become impossible," the analysis said.
- In the first scenario, the Treasury would prioritize some payments, which would raise questions of whether that's legal. If the Treasury chose that route, it and the Federal Reserve likely have the technical capability of making principal and interest payments on Treasury securities while delaying other payments, the report said.
- The second scenario is to delay all bills. For example, if the X Date is Dec. 21, Medicaid payments to states might be delayed from Dec. 21 to Dec. 22, Social Security benefits might be delayed from Dec. 22 to Dec. 27, Federal salaries might be pushed from Dec. 23 to Dec. 28, it speculated.
- Last week, Treasury Secretary Yellen again urged Congress to take action on the debt ceiling when she appeared before both chambers for testimony on COVID relief programs.
- Dear readers: We recognize that politics often intersects with the financial news of the day, so we invite you to click here to click here to join the separate political discussion.