{"id":122284,"date":"2021-10-03T13:28:46","date_gmt":"2021-10-03T13:28:46","guid":{"rendered":"https:\/\/fin2me.com\/?p=122284"},"modified":"2021-10-03T13:28:46","modified_gmt":"2021-10-03T13:28:46","slug":"avlon-defaulting-on-our-debt-would-be-catastrophic","status":"publish","type":"post","link":"https:\/\/fin2me.com\/business\/avlon-defaulting-on-our-debt-would-be-catastrophic\/","title":{"rendered":"Avlon: Defaulting on our debt would be catastrophic"},"content":{"rendered":"<p><cite>New York (CNN Business)<\/cite>The United States could be just weeks away from defaulting on its debt for the first time ever.<\/p>\n<p>The $28.4 trillion debt limit was reinstated August 1. Since then, Treasury Secretary Janet Yellen has been keeping the nation&#8217;s finances afloat by using emergency accounting maneuvers. Known as &#8220;extraordinary measures,&#8221; these steps allow the government to borrow additional funds without breaching the debt ceiling.<br \/>\nBut Yellen warned lawmakers this week that if Congress fails to raise, or suspend, the debt ceiling, the federal government will exhaust those extraordinary measures by October 18. <\/p>\n<ul><\/ul>\n<p>&#8220;At that point, we expect Treasury would be left with very limited resources that would be depleted quickly,&#8221; Yellen wrote in a letter to Congress. &#8220;It is uncertain whether we would continue to meet all the nation&#8217;s commitments after that date.&#8221;<\/p>\n<ul><\/ul>\n<p>That&#8217;s an accelerated timing from previously, when Yellen said this would happen at some point in October. <\/p>\n<p>This so-called X-date should be viewed as a best guess by Treasury, not a set-in-stone deadline based on exact science. In other words, America could hit the debt ceiling days before, or days after, October 18.<br \/>\nThere are many, many moving pieces here. Yellen herself warned the X-date &#8220;can unpredictably shift forward or backward.&#8221;<br \/>\nAnd given the stakes \u2014 Jamie Dimon has warned a default would cause a &#8220;cascading catastrophe of unbelievable proportions and damage America for 100 years&#8221; \u2014 it would be risky for Congress to get too close to the X-date, let alone beyond it. <\/p>\n<h3>Is there any leeway? Maybe<\/h3>\n<p>Of course, Treasury secretaries have a long history of giving themselves wiggle room when announcing an X-date \u2014 just in case Congress blows through that date. That&#8217;s what happened in 2011: Washington didn&#8217;t default then, but the delay did cost America its perfect credit rating from S&amp;P and rattle financial markets.<br \/>\nIt&#8217;s the same idea as telling someone who is chronically late that dinner is two hours earlier than scheduled &#8212; just to make sure they&#8217;re on time.<br \/>\nThere is some debate over just how much wiggle room Yellen is giving Congress this time.<br \/>\nYellen was asked at a hearing on Thursday &#8220;what happens on October 19&#8221; and her response indicates there could be a bit of leeway, but not much.<br \/>\n&#8220;We&#8217;re simply in an impossible situation in which it will be impossible for Treasury on that day, or a few days thereafter&#8230;We&#8217;ll have very limited resources,&#8221; Yellen said. &#8220;It will be run down quickly. We won&#8217;t be able to pay all of the government&#8217;s bills.&#8221;<br \/>\nHowever, the nonpartisan Congressional Budget Office issued a report Tuesday that suggests there may be additional time beyond October 18 for lawmakers to avoid a catastrophic default.<br \/>\nThe CBO projects that if the debt limit remains unchanged, Treasury&#8217;s ability to borrow using extraordinary measures will be exhausted and it will &#8220;most likely run out of cash near the end of October or the beginning of November.&#8221; That&#8217;s unchanged from CBO&#8217;s prior estimate in July.<br \/>\nCBO warns that after that happens, the federal government would be &#8220;unable to pay its obligations fully, and it would delay making payments for some activities, default on its debt obligations, or both.&#8221;<\/p>\n<h3>Zandi says the X-Date is around Oct. 20<\/h3>\n<p>However, others think there is much less time.<br \/>\nMark Zandi, chief economist at Moody&#8217;s Analytics, told CNN on Wednesday that Yellen is &#8220;likely being somewhat conservative,&#8221; but not overly so.<br \/>\n&#8220;I wouldn&#8217;t be surprised if it is a day or two later than the 18th,&#8221; Zandi said. &#8220;I&#8217;m estimating the 20th.&#8221;<br \/>\nThat implies a bit of wiggle room, but not much, certainly not as much as in 2011. Zandi said Thursday he&#8217;s not changing his estimate \u2014 despite the more optimistic take by the CBO. <\/p>\n<h3>Very hard to predict<\/h3>\n<p>The problem is that nailing down a precise X-date is unusually difficult today because there are even more moving pieces than during prior debt ceiling clashes.<br \/>\nBeyond the usual outlays for items like Social Security, Medicare and defense contracts, the Treasury is making big payments for disaster relief and Covid programs.<br \/>\nAt the same time, tax revenue has been more volatile due to the impact of the pandemic.<br \/>\n&#8220;Usually, these things aren&#8217;t very hard to predict. But right now, they are,&#8221; said Thomas Simons, senior money market economist at Jefferies. &#8220;The variant in daily cash flows is so high relative to historical precedent.&#8221;<br \/>\nYellen noted the government&#8217;s daily gross cash flow averaged nearly $50 billion per day over the past year and has even exceeded $300 billion.<\/p>\n<h3>&#8216;Scarily close to running out of cash&#8217;<\/h3>\n<p>Like Yellen, some on Wall Street are moving up the timing of when the government could default.<br \/>\nAs recently as September 10, Jefferies projected that Treasury could avoid default until November 10-15, based on projections for cash balances and updated data on extraordinary measures.<br \/>\n&#8220;Since then, things have changed,&#8221; Simons wrote in a note to clients on Tuesday.<br \/>\nIn particular, Simons noted that Treasury&#8217;s cash position &#8220;has dwindled faster than we expected it would throughout September.&#8221;<br \/>\nThat&#8217;s never a good sign heading into a debt ceiling impasse.<br \/>\nSimons said Treasury&#8217;s cash balances are starting to get &#8220;very low&#8221; on October 18. &#8220;We are more or less in agreement with Yellen,&#8221; Simons wrote in a report titled &#8220;Yellen flags October 18&#8230;and we think she means it this time.&#8221;<\/p>\n<ul><\/ul>\n<p>Asked on Thursday about the CBO report, Simons conceded there is a great deal of uncertainty and said the CBO forecast gives him a bit more hope \u2014 but not much.<br \/>\n&#8220;I still think that during the middle of October, Treasury is going to get scarily close to running out of cash,&#8221; Simons told CNN. &#8220;I am still extremely concerned about what is going to happen in the middle of next month.&#8221;<br \/>\nSource: <a href=\"https:\/\/edition.cnn.com\/2021\/10\/01\/economy\/debt-ceiling-next-steps\/index.html\" target=\"_blank\" rel=\"noopener\">Read Full Article<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>New York (CNN Business)The United States could be just weeks away from defaulting on its debt for the first time ever. The $28.4 trillion debt [&#8230;]<\/p>\n","protected":false},"author":3,"featured_media":122283,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[6],"tags":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v21.7 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Avlon: Defaulting on our debt would be catastrophic - Fin2me<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/fin2me.com\/business\/avlon-defaulting-on-our-debt-would-be-catastrophic\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Avlon: Defaulting on our debt would be catastrophic - Fin2me\" \/>\n<meta property=\"og:description\" content=\"New York (CNN Business)The United States could be just weeks away from defaulting on its debt for the first time ever. 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