Economists warn a lengthy default could send the U.S. economy into a deep recession with soaring unemployment, while destabilizing the global financial system that is built on U.S. bonds. Already investors are bracing for impact, demanding sharply higher yields on Treasury securities that mature in early June. In its latest analysis, the think tank said weak revenues during the spring tax filing season have been exacerbated by payment delays granted to taxpayers in some severe storm disaster areas, including much of California and certain counties in Georgia and Alabama, until Oct. 16, increasing the odds of a cash shortfall by early June.
"The coming weeks are critical for assessing the strength of government cash flows," Shai Akabas, BPC director of economic policy said in a statement. "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 reported a Friday cash balance of $206.7 billion and the BPC report said the department had about $115 billion worth of remaining borrowing capacity under $230 billion of extraordinary cash management measures.
TAX LIFELINE But if tax revenues allow Treasury to meet obligations through mid-June, quarterly estimated tax payments due on June 15 can likely float the government through June 30, BPC said in its analysis. On that date, the Treasury would be able to access $143 billion in additional borrowing headroom by suspending reinvestment of maturing investments in the Civil Service Retirement and Disability Fund and the Postal Service Retiree Health Benefits Fund, among the remaining extraordinary cash management measures that could be activated. "In such a scenario, the additional room created by these measures would support Treasury's ability to make good on our obligations through at least early July and perhaps several weeks beyond," BPC said. The think tank's latest estimate roughly agrees with the Congressional Budget Office's revised assessment that there is now a "significantly greater risk" of an early June default. Later on Tuesday, President Joe Biden is scheduled to meet with U.S. House of Representatives speaker Kevin McCarthy and other congressional leaders to discuss options to resolve the debt limit standoff between Democrats and Republicans.
Biden has so far refused to negotiate on Republicans'
demands for spending cuts in exchange for raising the debt
ceiling, but has said he is willing to discuss reducing deficits
once the limit has been increased.
(Reporting by David Lawder; Editing by Sonali Paul and Sharon
Singleton)
