Debt ceiling watchers in Washington and on Wall Street are keeping a close eye on June 15th, as experts make their best guesses for how close the US government will come to defaulting on its debt. The date has been identified as the deadline for taxpayers to pay their second instalment of estimated taxes for 2023 and is also when the government’s books are expected to improve now that the main tax season is winding down. Those funds, combined with the Treasury Department’s accounting manoeuvres, are what stands between the US and a default.
However, it is likely that the Treasury Department will gradually burn through its remaining cash on hand and extraordinary measures to pay for government operations before June 15th, leading to dangerously low balances in early June. As of April 19th, the Treasury Department’s general account had a closing balance of around $265.1 billion, which is expected to improve for a few more days as more tax returns are processed before beginning a gradual decline.
Without a deal in Congress, Treasury’s cash on hand may be dangerously low in early June, leading to projections of a balance as low as $26 billion on June 8th. While this balance may be enough to avoid a default in June, uncertainty in these projections means that no one can rule out a balance of $0 that month. Experts predict a 20% chance of a June default, but it won't be until May when final tax season revenue data is in to definitively say one way or another.
Even if the US government can stay afloat past June 15th, it would simply delay the inevitable, with a US default likely unavoidable in July or August without a debt-ceiling deal among House Republicans, Senate Democrats, and the White House. The approaching debt ceiling deadline is already causing economic effects, such as an increase in the spreads on US five-year credit default swaps to their highest level in over a decade.
One debt ceiling fight from recent history provides an example of the economic impact of approaching default. In the summer of 2011, Washington narrowly averted a crisis, but the economic chaos it sowed led to Standard & Poor's downgrading the US credit rating from AAA to AA+ for the first time in history. Economic stresses from approaching a default typically start in the T-bill market 2-3 months before the deadline, as money market funds avoid certain Treasury bills.
While the negotiations in Washington appear as far apart as ever, experts are warning of the economic effects that are likely to pile up simply by approaching a possible default. As the markets grapple with the non-trivial risk of a technical default on US Treasuries, the effects are likely to become an issue as early as May. While there are concerns that the situation may become worse, the possibility of a default could encourage lawmakers to find common ground and pass a deal to avoid the worst outcome.
input from / Yahoo
