The US Treasury’s pile of cash is dwindling

One dollar bills

One dollar bills

While President Joe Biden, House Speaker Kevin McCarthy, and other politicians in Washington strive to reach a deal to raise the US federal government’s $31.4 trillion debt ceiling, the US Treasury’s cash balance fell to $87 billion on Monday (May 15), the lowest it’s been since April 12.

Treasury Secretary Janet Yellen told lawmakers this week that the department may not be able to avoid breaching the statutory debt limit around early June, narrowing the window of time left to come to a resolution on the debt ceiling. Prior projections estimated the Treasury would run out of cash in July or August.

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If the US breaches its debt ceiling and cannot pay its bills, the economic consequences could be catastrophic. The White House issued a statement saying that a breach of the debt ceiling could cause significant disruptions to financial markets that would damage the economic conditions faced by both households and businesses.

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When will the US run out of cash?

The Treasury Department cannot determine the exact date the US government will run out of cash, but refers to the date as the “X-date”. The problem has been developing for months. The US reached its statutory debt limit on Jan. 19, which caused the Treasury Department to begin using workaround accounting maneuvers to conserve cash and avoid breaching the cap.

With the possibility of now depleting cash reserves by June 1, the actual date when the Treasury runs out of cash to pay government bills could be days or weeks later than that. The lower the cash reserves, the harder it is to predict when a default would happen, due to the process of huge payments going out and tax revenues coming in, making an exact date a moving target that’s difficult to pinpoint.

Some analysts think that if no deal is signed into law by Memorial Day, and the X-date is potentially still on course to happen, that short-term suspension of the borrowing cap could be imposed to give Congress more time. Comparisons have been drawn to the debt crisis in 2011, when an agreement was not made until days before the US could have defaulted on its debt. Negotiations saw similar arguments for spending cuts made by GOP-led lawmakers, in exchange for raising the debt ceiling.

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Source: https://finance.yahoo.com/news/us-treasurys-pile-cash-dwindling-090000349.html