The next week or so is the make-or-break window for debt ceiling negotiators to craft a deal as the Treasury whittles away at the last of its cash supply.
Even just last week, there appeared to be much less urgency for lawmakers and the White House to negotiate — President Joe Biden wasn’t even in the country. That all shifted dramatically on Monday after Biden’s return from the G-7 meeting in Japan. Now, negotiators are working in earnest through the night to craft a deal, knowing that they have mere days until an unprecedented default.
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Treasury Secretary Janet Yellen said the United States could suffer a default as soon as June 1, which is next Thursday. That is likely a conservative estimate, although guesses of when the Treasury could run out of cash have moved closer to that date. The Bipartisan Policy Center warned on Tuesday the X date — that is, the point at which the Treasury can no longer guarantee paying all bills on time and in full — might hit between June 2 and June 13.
“We should have addressed the debt ceiling even before we hit extraordinary measures, but we are now reaching the absolute last minute,” Maya MacGuineas, president of the Committee for a Responsible Federal Budget, told the Washington Examiner, referencing the Treasury Department’s “extraordinary measures,” which essentially entail moving around government funds to pay incoming bills without issuing new debt.
As that X date gets closer and no deal is reached, it raises the risk of bad things happening even before a default, MacGuineas said. For instance, markets will begin to panic as the days drag on, and the U.S. could even suffer a credit downgrade, something that would send stocks plummeting.
The worst debt ceiling close call thus far, in 2011, caused S&P to downgrade the country’s credit rating, having it fall below AAA (outstanding) for the first time in history.
“The longer policymakers wait to address the debt limit, the more likely our economic fate will be determined by external actors,” said Shai Akabas, executive director of Bipartisan Policy Center’s Economic Policy Program. “Credit rating agencies, Treasury investors, and global financial markets aren’t going to wait around forever. Once things turn, the situation could deteriorate quickly and be hard to reverse, which would immediately and negatively impact American consumers and businesses.”
To avoid that, the White House and lawmakers must act fast. Even after Biden and House Speaker Kevin McCarthy (R-CA) get a tentative agreement in place, there will still be time needed for Republican and Democratic leadership to whip the votes in the House to pass actual legislation that raises the $31.4 trillion debt ceiling.
McCarthy said Monday that he has no intentions of waiving the House’s three-day rule. That rule allows House members at least three days to review legislation before it is brought to a vote on the floor. That means that it will take at least three days after an agreement is reached before it may be approved by Congress, and ultimately signed by Biden.
The amount of time it will take to get an agreement in place, write legislation, whip enough House members to support a lift, have the Senate vote on it, and have the president sign the bill into law is dependent upon how much pressure is bearing down on the involved parties, according to MacGuineas.
Meanwhile, the Treasury is preparing behind the scenes. Treasury officials have reportedly been asking government agencies about the possibility of making payments later amid the negotiations.
“Come early June, Treasury will be skating on very thin ice that will only get thinner with each passing day,” Akabas said. “Of course, the problem with skating on thin ice is that sometimes, you fall through.”
As of Tuesday, the two sides — the White House and Republicans — were still far apart on reaching a workable deal.
McCarthy, during a closed-door meeting with his Republican colleagues on Tuesday, told them that negotiators are “nowhere near a deal yet.”
“We’re now at a moment where we need to close a deal before we get to brinkmanship and getting close to the X-date. We need a sense of urgency,” said Rep. Patrick McHenry (R-NC), the chairman of the Financial Services Committee.
Another thing that is tricky about the situation is that while the Treasury has put the X date as soon as June 1, that is not an actual deadline but rather a moving target.
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MacGuineas said that uncertainty comes with getting so close to this ambiguous date without a deal in hand. MacGuineas said that if negotiations push right up to the day that the Treasury runs out of cash, she is uncertain what that would even look like because the U.S. has never been that close to default.
“And I don’t want to find out — I don’t want the country to find out,” she said. “It’s just like hitting an invisible dog fence. It would be better not to have to get to that point before you feel the pain.”