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Debt Limit Analysis: AU GUST 2017
Debt Limit Analysis: AU GUST 2017
AUGUST 2017
SUMMARY OF FINDINGS
Financial and economic risks grow as the debt limit impasse goes on.
Already, interest rates have risen on short-term Treasury securities that
mature around the time Treasury is projected to run short on
extraordinary measures and cash on hand.
EXTRAORDINARY MEASURES
EM Exhausted
5
Extraordinary Measures
THE BIG THREE EXTRAORDINARY MEASURES
Each day, Treasury may temporarily reduce the amount of debt held by this
fund, which holds government bonds for federal employee retirement
accounts.
Treasury may postpone new investments in this pension fund. The CSRDF
measure is most useful in June, September, and December, when major
interest credits and reinvestments of maturing securities occur.
Each day, Treasury may temporarily reduce the amount of debt held by this
fund, which is used to facilitate foreign exchange transactions.
7
STATUS OF EXTRAORDINARY MEASURES
Remaining, as
EXTRAORDINARY MEASURES March 2017 of July 2017
(estimated)
Do not reinvest the Federal Employees
Retirement System G-Fund $225 billion $35 billion
Notes: The totals indicate available measures. These totals only include the value of extraordinary measures that can be
used to extend the X Date. Treasury has additional measures available that assist with cash flow and debt
management.
Sources: Government Accountability Office; Congressional Research Service; Congressional Budget Office; Treasury Direct
8
Government Account Statements
AFTER EXTRAORDINARY MEASURES
9
The X Date
WHAT IS THE X DATE?
In other words, if the debt limit has not been raised by the X Date, the
federal government will begin defaulting on some of its obligations.
After the X Date, bills must be paid solely out of incoming cash flows,
which will be insufficient to cover all government spending.
11
COST OF APPROACHING THE X DATE
$350
$300
(in billions)
$250
$200
$150
$50
$-
ne ly s t r r r
J u Ju gu be ob
e be
Au em t em
p t Oc o v
Se N
Note: The projections above are subject to substantial uncertainty and volatility resulting from economic
performance, cash flow fluctuations, and other factors.
Source: Bipartisan Policy Center projections based upon Treasurys daily and direct government account statements 13
MAJOR SOURCES OF UNCERTAINTY
Timing of Revenue
Revenue is the most volatile part of the federal governments cash flows. It
varies from month-to-month and from day-to-day, making the prediction of
an exact X Date impossible.
Certain types of revenue, such as the quarterly tax payments due in April,
June, and September, are especially volatile.
Intragovernmental Transfers
Policy Changes
Major upcoming fiscal policy decisions could impact Treasury cash flows and14
therefore the X Date. These include decisions about the Fiscal Year 2018
OCTOBER IS TYPICALLY A DOWN MONTH
$150,000,000,000
$100,000,000,000
$50,000,000,000
$-
$(50,000,000,000)
$(100,000,000,000)
$(150,000,000,000)
$(200,000,000,000)
$(250,000,000,000)
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
$21.8b Medicare
Advantage
Payments
1 2 3 4 5 6 7
$81b Transfer to $2.8b Medicaid $3.3b Federal
Military Retirement Salaries
Trust Fund
$24.1b Social
Security
$7.4b Interest
Payments
$5.4b Civil Service
Retirement
8 9 10 11 12 13 14
Columbus Day $1.7b Federal $15.8b Social $3.3b Medicare
Salaries Security
15 16 17 18 19 20 21
$2.7b Military Active $2.0b $15.4b Social $3.0b Medicaid $3.3b Federal
Pay Interest Security Salaries
Payments
22 23 24 25 26 27 28
$3.6b Marketplace $15.6b Social $3.4b Medicaid
Payments Security
16
Note: Figures are BPC projections and subject to significant uncertainty.
Prioritization
BEYOND THE X DATE
18
BEYOND THE X DATE HOW WOULD TREASURY
PROCEED?
Note: This scenario is presented purely for illustrative purposes and simplifies the situation. There are a number of caveats to its feasibility
(some of which are mentioned elsewhere in this presentation), including the fact that revenues and obligations are lumpy, such that even
if all of the payments on the previous slide could be afforded from the vantage point of aggregate figures for the covered period, the
specific cash situation on particular days would make certain payments unaffordable. Further, this scenario assumes that that trust fund
operations continue as normal and that Treasury enters October 2 with no cash balance and exactly enough extraordinary measures to
20
cover that days Military Retirement Trust Fund payment.
ILLUSTRATIVE SCENARIO: PRIORITIZATION
Veterans Benefits $6 b
22
CONSEQUENCES
Economic disruption:
Immediate 23% cut in federal spending would affect broader economy
Many service providers unpaid
Individuals not receiving government checks
Widespread uncertainty as decisions are made day-by-day
23
PRIORITIZATION COULD IT BE DONE?
2. Given the sheer number of daily payments and Treasurys computerized payment
system, prioritization would require a massive overhaul and reprogramming of these
operations that may be impossible
(For example, upon reaching the X Date, it might take two days of
revenue collections to raise enough cash to make all of the payments due
on day 1. Thus, the first days payments would be made one day late.
This, in turn, would delay the second days payments to a later day.)
In the 2012 OIG report, some senior Treasury officials stated that they
believed this to be the most plausible and least harmful course of action.
25
ILLUSTRATIVE SCENARIO: DELAYED PAYMENTS
Note: These projections incorporate a set of assumptions, including (for illustrative purposes) that the X Date occurs at the
beginning of the BPC estimated window (October 2) and that federal trust fund operations continue as normal. Further, this scenario
assumes that Treasury enters October 2 with no cash balance and exactly enough extraordinary measures to cover that days Military
Retirement Trust Fund payment.
Source: Bipartisan Policy Center projections based upon daily Treasury statements
26
Daily Analysis
DAILY CASH FLOW ANALYSIS
28
Running Cash Deficit:
DAILY CASH FLOW ANALYSIS $35 billion
$68
$ 68 Billion
Billion in
in committed
committed spending
spending
Social
Social Security
Security Benefits:
Benefits: $24.1
$24.1 billion
billion
Interest Payments: $7.4 billion
Interest Payments: $7.4 billion
Veterans
Veterans Benefits:
Benefits: $6.3
$6.3 billion
billion
Civil
Civil Service Retirement: $5.5
Service Retirement: $5.5 billion
billion
$40 b SSI Benefits: $4.3 billion
SSI Benefits: $4.3 billion
Other
Other Spending:
Spending: $20.1
$20.1 billion
billion
$23.1 Billion in committed spending:
$33
$ 33 Billion
Billion in
in revenues
revenues
14.0 b Social Security Benefits
1.3 b Medicaid Payments
1.2 b Medicare & Other CMS
Payments
$6.4 Billion in revenues 1.1 b Defense Vendor Payments
$0 b 5.5 b Other Spending
Note: All daily figures assume zero cash balance on Oct. 2; numbers may not add due to rounding. Scale on this
slide differs from all following ones.
Source: Bipartisan Policy Center projections based off of daily and monthly Treasury statements
29
Running Cash Deficit:
DAILY CASH FLOW ANALYSIS $36 billion
$25 b
$10
$ 10 Billion
Billion in
in committed
committed spending
spending
Medicare:
Medicare: $1.5
$1.5 billion
$8
8 Billion
$
Billion in
in revenues
revenues Other
billion
Other Spending: $8.1
Spending: $8.1 billion
billion
$0 b
Note: All daily figures assume zero cash balance on Oct. 2; numbers may not add due to rounding.
Source: Bipartisan Policy Center projections based off of daily and monthly Treasury statements
30
Running Cash Deficit:
DAILY CASH FLOW ANALYSIS $32 billion
$25 b
$13
$13 Billion
Billion in
in revenues
revenues
$9
$9 Billion
Billion in
in committed
committed spending
spending
Medicaid:
Medicaid: $1.7
$1.7 billion
billion
Medicare:
Medicare: $1.3 billion
$1.3 billion
$0 b Other
Other Spending: $6.3
Spending: $6.3 billion
billion
Note: All daily figures assume zero cash balance on Oct. 2; numbers may not add due to rounding.
Source: Bipartisan Policy Center projections based off of daily and monthly Treasury statements
31
Running Cash Deficit:
DAILY CASH FLOW ANALYSIS $34 billion
$25 b
$9
$9 Billion
Billion in
in committed
committed spending
spending
$7 Billion
$7 Billion in
in revenues
revenues Medicaid:
Medicaid: $2.8
Medicare:
$2.8 billion
billion
Medicare: $1.5 billion
$1.5 billion
$0 b Other
Other Spending: $4.8
Spending: $4.8 billion
billion
Note: All daily figures assume zero cash balance on Oct. 2; numbers may not add due to rounding.
Source: Bipartisan Policy Center projections based off of daily and monthly Treasury statements
32
Running Cash Deficit:
DAILY CASH FLOW ANALYSIS $37 billion
$25 b
$11
$ 11 Billion
Billion in
in spending
spending
$9
$ 9 Billion
Billion in
in revenues Federal
Federal Salaries:
Salaries: $3.3
$3.3 billion
billion
revenues Medicaid: $1.7 billion
Medicaid: $1.7 billion
Medicare:
Medicare: $1.3
$1.3 billion
billion
$0 b Other
Other Spending: $5.0
Spending: $5.0 billion
billion
Note: All daily figures assume zero cash balance on Oct. 2; numbers may not add due to rounding.
Source: Bipartisan Policy Center projections based off of daily and monthly Treasury statements
33
Running Cash Deficit:
DAILY CASH FLOW ANALYSIS $33 billion
$25 b
$15
$ Billion in
15 Billion in revenues
revenues
$11
$ 11 Billion
Billion in
in spending
spending
Federal
Federal Salaries:
Salaries: $1.7
$1.7 billion
billion
Medicaid: $1.3 billion
Medicaid: $1.3 billion
Medicare:
Medicare: $1.2
$1.2 billion
billion
$0 b Other
Other Spending:
Spending: $6.6
$6.6 billion
billion
Note: All daily figures assume zero cash balance on Oct. 2; numbers may not add due to rounding.
Source: Bipartisan Policy Center projections based off of daily and monthly Treasury statements
34
Running Cash Deficit:
DAILY CASH FLOW ANALYSIS $49 billion
$30
$ 30 Billion
Billion in
in spending
spending
Social
Social Security
Security Benefits:
Benefits: $15.8
$15.8 billion
billion
$25 b
Medicare:
Medicare: $1.4
$1.4 billion
billion
Defense
Defense Vendor Payments:
Vendor Payments: $1.1
$1.1 billion
billion
Medicaid: $1.0 billion
Medicaid: $1.0 billion
Other
Other Spending:
Spending: $10.4
$10.4 billion
billion
$13
$ 13 Billion
Billion in
in revenues
revenues
$0 b
Note: All daily figures assume zero cash balance on Oct. 2; numbers may not add due to rounding.
Source: Bipartisan Policy Center projections based off of daily and monthly Treasury statements
35
Running Cash Deficit:
DAILY CASH FLOW ANALYSIS $56 billion
$25 b
$13
$ 13 Billion
Billion in
in spending
spending
Medicaid:
Medicaid: $2.3
$2.3 billion
billion
Medicare:
Medicare: $1.9 billion
$1.9
$7 Billion
$7 Billion in
in revenues
revenues Defense
billion
Defense Vendor Payments:
Vendor Payments: $1.1$1.1 billion
billion
$0 b Other Spending: $8.0 billion
Other Spending: $8.0 billion
Note: All daily figures assume zero cash balance on Oct. 2; numbers may not add due to rounding.
Source: Bipartisan Policy Center projections based off of daily and monthly Treasury statements
36
Running Cash Deficit:
DAILY CASH FLOW ANALYSIS $61 billion
$25 b
$13
$ 13 Billion
Billion in
in spending
spending
Medicaid:
Medicaid: $3.3
$3.3 billion
$99 Billion
$
Billion in
in revenues
revenues Medicare:
billion
Medicare: $1.8 billion
$1.8 billion
Defense
Defense Vendor Payments:
Vendor Payments: $1.1$1.1 billion
billion
$0 b Other
Other Spending:
Spending: $7.2
$7.2 billion
billion
Note: All daily figures assume zero cash balance on Oct. 2; numbers may not add due to rounding.
Source: Bipartisan Policy Center projections based off of daily and monthly Treasury statements
37
Running Cash Deficit:
DAILY CASH FLOW ANALYSIS $38 billion
$35
$ 35 Billion
Billion in
in revenues
revenues
$25 b
$12
$ 12 Billion
Billion in
in spending
spending
Military
Military Active
Active Pay:
Pay: $2.6
$2.6 billion
billion
Medicare: $1.6 billion
Medicare: $1.6 billion
Defense
Defense Vendor
Vendor Payments:
Payments: $1.3 $1.3 billion
billion
Education Programs: $1.2
Education Programs: $1.2 billionbillion
$0 b Other
Other Spending:
Spending: $4.9
$4.9 billion
billion
Note: All daily figures assume zero cash balance on Oct. 2; numbers may not add due to rounding.
Source: Bipartisan Policy Center projections based off of daily and monthly Treasury statements
38
Running Cash Deficit:
DAILY CASH FLOW ANALYSIS $35 billion
$25 b
$14
$14 Billion
Billion in
in revenues
revenues $11
$ 11 Billion
Billion in
in spending
spending
Interest
Interest on
on Treasury
Treasury Securities:
Securities: $2.0
$2.0 billion
billion
Medicare: $1.7 billion
Medicare: $1.7 billion
Defense
Defense Vendor
Vendor Payments:
Payments: $1.4$1.4 billion
billion
$0 b Other Spending: $6.3 billion
Other Spending: $6.3 billion
Note: All daily figures assume zero cash balance on Oct. 2; numbers may not add due to rounding.
Source: Bipartisan Policy Center projections based off of daily and monthly Treasury statements
39
Running Cash Deficit:
DAILY CASH FLOW ANALYSIS $46 billion
$25 b
$25
$25 Billion
Billion in
in spending
spending
Social
Social Security
Security Benefits:
Benefits: $15.4
$15.4 billion
billion
Medicaid: $1.7 billion
Medicaid: $1.7 billion
$13
$ 13 Billion
Billion in
in revenues
revenues
Defense
Defense Vendor
Medicare:
Vendor Payments:
$1.4
Payments: $1.5
billion
$1.5 billion
billion
Medicare: $1.4 billion
Other
Other Spending:
Spending: $4.8
$4.8 billion
billion
$0 b
Note: All daily figures assume zero cash balance on Oct. 2; numbers may not add due to rounding.
Source: Bipartisan Policy Center projections based off of daily and monthly Treasury statements
40
Running Cash Deficit:
DAILY CASH FLOW ANALYSIS $51 billion
$25 b
$11
$ 11 Billion
Billion in
in spending
spending
Medicare:
Medicare: $1.9
$1.9 billion
$7 Billion
$7 Billion in
in revenues
revenues Medicaid: $3.0
billion
billion
Medicaid: $3.0 billion
$0 b Other
Other Spending:
Spending: $6.5
$6.5 billion
billion
Note: All daily figures assume zero cash balance on Oct. 2; numbers may not add due to rounding.
Source: Bipartisan Policy Center projections based off of daily and monthly Treasury statements
41
Running Cash Deficit:
DAILY CASH FLOW ANALYSIS $55 billion
$25 b
$12
$ 12 Billion
Billion in
in spending
spending
Federal
Federal Salaries:
Salaries: $3.3
$3.3 billion
billion
$9
$ 9 Billion
Billion in
in revenues
revenues Medicare: $1.6 billion
Medicare: $1.6 billion
Defense
Defense Vendor
Vendor Payments:
Payments: $1.5
$1.5 billion
billion
Medicaid: $1.1 billion
Medicaid: $1.1 billion
$0 b Other
Other Spending:
Spending: $4.7
$4.7 billion
billion
Note: All daily figures assume zero cash balance on Oct. 2; numbers may not add due to rounding.
Source: Bipartisan Policy Center projections based off of daily and monthly Treasury statements
42
Running Cash Deficit:
DAILY CASH FLOW ANALYSIS $54 billion
$25 b
$15
$ Billion in
15 Billion in revenues
revenues $15
$15 Billion
Billion in
in spending
spending
Marketplace
Marketplace payments:
payments: $3.6
$3.6 billion
billion
Medicare: $1.5 billion
Medicare: $1.5 billion
Defense
Defense Vendor
Vendor Payments:
Payments: $1.5
$1.5 billion
billion
Federal Salaries: $1.4 billion
Federal Salaries: $1.4 billion
Other
Other Spending:
Spending: $6.5
$6.5 billion
billion
$0 b
Note: All daily figures assume zero cash balance on Oct. 2; numbers may not add due to rounding.
Source: Bipartisan Policy Center projections based off of daily and monthly Treasury statements
43
Running Cash Deficit:
DAILY CASH FLOW ANALYSIS $56 billion
$25 b
$10
$ 10 Billion
Billion in
in committed
committed spending
spending
$8
$ 8 Billion
Billion in
in revenues
revenues Defense
Defense Vendor
Vendor Payments:
Payments: $1.6$1.6 billion
billion
Medicare: $1.4 billion
Medicare: $1.4 billion
$0 b Other
Other Spending:
Spending: $6.9
$6.9 billion
billion
Note: All daily figures assume zero cash balance on Oct. 2; numbers may not add due to rounding.
Source: Bipartisan Policy Center projections based off of daily and monthly Treasury statements
44
Running Cash Deficit:
DAILY CASH FLOW ANALYSIS $69 billion
$25 b $27
$ 27 Billion
Billion in
in spending
spending
Social
Social Security
Security Benefits:
Benefits: $15.6
$15.6 billion
billion
Medicaid: $2.2 billion
Medicaid: $2.2 billion
Medicare:
Medicare: $1.6
$1.6 billion
billion
Defense
Defense Vendor
Vendor Payments:
Payments: $1.4$1.4 billion
$13
$ 13 Billion
Billion in
in revenues
revenues Other Spending: $5.7 billion
Other Spending: $5.7 billion
billion
$0 b
Note: All daily figures assume zero cash balance on Oct. 2; numbers may not add due to rounding.
Source: Bipartisan Policy Center projections based off of daily and monthly Treasury statements
45
Running Cash Deficit:
DAILY CASH FLOW ANALYSIS $75 billion
$25 b
$13
$ 13 Billion
Billion in
in spending
spending
Medicaid:
Medicaid: $3.4
$3.4 billion
billion
Medicare:
Medicare: $2.0 billion
$2.0 billion
$7 Billion
$7 Billion in
in revenues
revenues IRS
IRS Tax
Tax Refunds:
Defense
Refunds: $1.3
$1.3 billion
billion
Defense Vendor Payments: $1.1
Vendor Payments: $1.1 billion
billion
$0 b Other Spending: $5.4 billion
Other Spending: $5.4 billion
Note: All daily figures assume zero cash balance on Oct. 2; numbers may not add due to rounding.
Source: Bipartisan Policy Center projections based off of daily and monthly Treasury statements
46
Running Cash Deficit:
DAILY CASH FLOW ANALYSIS $76 billion
$25 b
$9
$ 9 Billion
Billion in
in revenues
revenues $10
$ 10 Billion
Billion in
in committed
committed spending
spending
Medicare:
Medicare: $1.5
$1.5 billion
billion
Defense
Defense Vendor Payments:
Vendor Payments: $1.4$1.4 billion
billion
$0 b Other Spending: $6.6 billion
Other Spending: $6.6 billion
Note: All daily figures assume zero cash balance on Oct. 2; numbers may not add due to rounding.
Source: Bipartisan Policy Center projections based off of daily and monthly Treasury statements
47
Running Cash Deficit:
DAILY CASH FLOW ANALYSIS $71 billion
$25 b
$15
$ Billion in
15 Billion in revenues
revenues
$10
$ 10 Billion
Billion in
in committed
committed spending
spending
Medicare:
Medicare: $1.6
$1.6 billion
billion
Defense
Defense Vendor Payments:
Vendor Payments: $1.3$1.3 billion
billion
Medicaid: $1.1 billion
Medicaid: $1.1 billion
$0 b Other
Other Spending:
Spending: $6.2
$6.2 billion
billion
Note: All daily figures assume zero cash balance on Oct. 2; numbers may not add due to rounding.
Source: Bipartisan Policy Center projections based off of daily and monthly Treasury statements
48
Running Cash Deficit:
DAILY CASH FLOW ANALYSIS $73 billion
$25 b
$10
$ 10 Billion
Billion in
in committed
committed spending
spending
$8
$ 8 Billion
Billion in
in revenues
revenues Medicaid:
Medicaid: $1.7
Defense
$1.7 billion
billion
Defense Vendor Payments:
Vendor Payments: $1.5$1.5 billion
billion
Medicare: $1.4 billion
Medicare: $1.4 billion
$0 b Other
Other Spending:
Spending: $1.9
$1.9 billion
billion
Note: All daily figures assume zero cash balance on Oct. 2; numbers may not add due to rounding.
Source: Bipartisan Policy Center projections based off of daily and monthly Treasury statements
49
Market Risk
THE RISKS ARE REAL WARNING SIGNS
While the risk of default isnt high, markets have nonetheless started
pricing such risk into the value of Treasury bills that mature shortly
after the projected X Date.
This inversion has only occurred three times in the past decade: in
the time period around the Great Recession, during the 2013 debt
ceiling impasse, and July 2017.
51
THE RISKS ARE REAL WARNING
SIGNS
1.20
1.15
1.10
1.05
1.00
0.95
Date of Issuance
53
DEBT ROLLOVER AND THE X DATE
Treasury will have to pay higher interest rates to attract new buyers.
As we have also previously reported, delays in raising the debt limit can
create uncertainty in the Treasury market. To avoid such uncertainty and the
disruption to the Treasury market that it creates as well as to help inform the
fiscal policy debate in a timely way, we have suggested in our February 2011
and July 2012 reports related to the debt limit that Congress should consider
ways to better link decisions about the debt limit with decisions about
spending and revenue at the time those decisions are made.
Source: Government Accountability Office Audit of the U.S. Governments Consolidated Financial Statements
57
for Fiscal Years 2013 and 2014
THE RISKS ARE REAL
U.S. economy
Note: Long-range projections are subject to significant uncertainty. These estimates assume no significant policy or economic
change over these time periods. Additionally, the figures assume that extraordinary measures are unwound and available for use
again after the reinstatement (as has been the case in recent suspensions).
Assumptions:
Fiscal Year 2018 budget is funded under a continuing resolution. No major
shocks (e.g., recession, natural disaster, new overseas conflict) that could
materially affect government finances.
62
Authors
SHAI AKABAS D I R E C T O R O F E C O N OM I C P O L I C Y
T I M S H AW S E N I O R P O L I C Y A N A LY S T
P R OJ E C T A SSI S TA N T
J A C K R A M E T TA
MEDIA INQUIRIES
T O BY Z A KA R I A
T Z A KA R I A @ B I PA RT I S A N P O L I CY. O R G
( 2 02 ) 3 79 - 1 62 7
C O N G R E SS I O N A L I N Q U I R I E S
A S H L E Y R I D LO N
A R I D LO N @ B P C AC T I O N . O R G
( 2 02 ) 7 14 - 7 30 9