Alec Phillips, a research chief political economist at Goldman Sachs, expects the United States to have time until June 8 before the country runs out of money to service its payments.
“The reality is Congress has to do this (raising the debt ceiling) at some point very soon, and they should just go ahead and do it. So, waiting for the last minute isn’t necessarily the right move, even though we think that maybe they could go a little bit longer.”
However, if the debt limit were not raised or suspended in time to prevent a default, Fitch would move the U.S. ratings to Restricted Default (RD).
“Affected Treasury securities would carry a ‘D’ rating until the default was cured. Prioritizing debt payments to avoid an immediate default, if this were possible, might not be consistent with a ‘AAA’ rating.”
Treasury Cash Balance
The cash balance at the U.S. Treasury has drastically fallen in just a week. On May 11, the treasury’s closing cash balance stood at $143.31 billion. A week later, on May 18, the cash balance dropped to $57.34 billion, a decline of almost 60 percent.Regarding the issue, Phillips predicted that the Treasury might run down its cash balance to near zero by the time lawmakers decide to raise the debt ceiling. The Treasury could then issue $500 billion–$600 billion worth of bills over a few weeks.
Political Gridlock Over Raising Debt Ceiling
With only a few weeks remaining before the X-date arrives, Republican and Democrat lawmakers have yet to reach a deal on raising the debt ceiling. On May 21, House Republican Speaker Kevin McCarthy (R-Calif.) and President Joe Biden discussed the issue on the phone.The two are set to meet on May 22 to further discuss raising the debt ceiling. McCarthy and Republicans want the Biden administration to implement spending cuts and increase the defense budget. Biden has indicated that he is open to making the spending cuts.
Some Senate Democrats have asked Biden to invoke the U.S. Constitution’s 14th Amendment to prevent a debt default.
“The Constitution is clear. The power to ‘borrow money on the credit of the United States’ is given to Congress (Article 1, Section 8) and not the Executive,” the letter stated.