After the fiscal cliff fiasco, debt ceiling crisis now looms next month on 'X Date' - when federal government runs out of cash
The federal government could run out of cash as early as mid-February, bringing forward the next debt ceiling crisis - what experts have ominously labelled 'the X Date'.
'Based on financial data from Treasury, we estimate that the government will be unable to pay all of its bills as early as February 15th, also known as the X Date” said Steve Bell, senior director of the Economic Policy Project at the centrist Bipartisan Policy Centre (BPC) think tank.
Timothy Geithner, the Treasury Secretary, warned Congress just after Christmas that the U.S. would reach its current $16.394 trillion debt limit on December 31 but that the federal government would begin to take a series of extraordinary measures to postpone hitting the ceiling for about two months.
Fast running out: Graph shows a prediction of how quickly the billions of dollars in federal cash and available extraordinary measures will be used upBut the BPC believes that 'X Day' might come around sooner than that.
'Our numbers show that we have less time to solve this problem than many realize. We estimate that Treasury will exhaust its borrowing authority and no longer have sufficient funds to meet its obligations in full and on time at some point between February 15 and March 1.
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'It will be difficult for Treasury to get beyond the March 1 date in our judgement.'
Unless Congress takes action to raise the country's borrowing limit, the United States will default on its debt.
Looming disaster: Biden and Obama announce the fiscal cliff deal hammered out at the last minute a the turn of the New Year - but worse problems could be in store... and more political wranglingRepublicans have indicated they are willing to raise the debt ceiling but insist that any increase must be coupled with meaningful savings from entitlement programmes like Medicare and Medicaid in order to begin bringing down the $16 trillion national debt - more than $145,000 per taxpayer.
Obama has countered that he is willing to consider spending cuts separately but will not haggle over the government’s borrowing authority.
'One thing I will not compromise over is whether or not Congress should pay the tab for a bill they’ve already racked up,' Obama said in a recent weekly radio address.
Grim choices: The study gave some examples of choices of what could be spent (above) and what would have to be cut (below) if the hit the debt ceiling was hitThe BPC predicts that between February 15 and March 15 the federal government will collect just $277 billion to pay $452 billion - just 60 per cent - in obligations, including payments related to tax refunds, Medicare and Medicaid, Social Security and debt interest.
This could lead to a process called 'prioritization' in which the Treasury will pay off the interest on the debt before other obligations in order to prevent a fresh global financial crisis.
OR: Another example shows that individual tax refunds would have to go by the way side to pay for defense contracts and payments to veterans'If we reach the X Date and Treasury is forced to prioritise payments, handling payments for many important and popular programs will quickly become impossible, causing disruption to an already fragile economic recovery,' said Bell.
The results of a 40 per cent cut to government services would be catastrophic. Virtually all federal employees, including soldiers, would probably cease being paid. The government might not have enough cash money to pay Social Security and providers under Medicaid providers.
According to the BPC, a debt limit increase of $1.1 trillion would be needed to fully fund the government until the end of 2013 and another $1 trillion until the end of 2014.
A $1.2 trillion sequester of spending cuts - half of which would come from the defence budget - was only postponed for two months and represent a second fiscal cliff after $4.5 trillion in tax rises were largely averted.
A last-minute deal approved by Congress on New Year's Day and swiftly signed by President Obama blocked hundreds of billions of dollars of automatic tax increases and spending cuts from taking effect.
A failure to raise the debt ceiling in time for 'X Day' could lead to a federal government default and credit downgrade.