US government could default ‘as soon as mid-December’ without action: Analysts

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WASHINGTON, DC - OCTOBER 06: U.S. Treasury Secretary Janet Yellen (C) listens to President Joe Biden during a hybrid meeting with corporate chief executives and members of his cabinet to discuss the looming federal debt limit in the South Court Auditorium in the Eisenhower Executive Office Building on October 06, 2021 in Washington, DC. Each of the meeting participants spoke in dire terms about the negative national and global economic reaction to Congress failing to raise the limit and the U.S. defaulting on its debt. (Photo by Chip Somodevilla/Getty Images)
Treasury Secretary Janet Yellen meets with President Joe Biden to discuss the federal debt limit in October. (Chip Somodevilla/Getty Images)

On Tuesday, Treasury Secretary Janet Yellen set Dec. 15 as the latest deadline for when the U.S. could default on government debt.

Today, an independent group of analysts at the Bipartisan Policy Center (BPC) have confirmed the deadline, projecting a debt limit “X Date” of when the U.S. will no longer be able to pay its bills as a possibility beginning in mid-December without any action from Congress.

The relative clarity on this mid-December deadline comes as Yellen confirmed that a $118 billion transfer to the Highway Trust Fund – part of the just-signed Bipartisan Infrastructure Deal – will, indeed, be completed by Dec. 15.

The news underscores a pile-up of end-of-the-year priorities facing Congress. In addition to the debt limit issue, lawmakers hope to pass the ambitious Build Back Better Act, Congress’s annual defense policy bill, as well as a bill focused on China called the U.S. Innovation and Competition Act. And there's also the issue of averting a government shutdown by Dec. 3.

Because of the unpredictable nature of government spending, the BPC says there is a chance the debt limit default date could drag into the new year, as late as early February, though they warn the Highway Trust Fund transfer means there is “a greater likelihood than usual that the X Date will fall towards the front portion of BPC’s range.”

In her letter to Congress this week, Yellen made assurances that the government could stay open through Dec. 15 and complete the Highway Trust Fund transfer. But “there are scenarios in which Treasury would be left with insufficient remaining resources to continue to finance the operations of the U.S. government beyond this date.”

Wrightson ICAP LLC, a research firm that analyzes Federal Reserve and Treasury operations, has a slightly more optimistic outlook. Earlier this week, the group wrote their ”base case is that the Treasury will have enough fiscal resources even after the [Highway Trust Fund] transfer to meet its obligations until late December or the early part of January.”

Shai Akabas, BPC director of economic policy, said either way, action is vital before Congress leaves for its December holiday recess, scheduled for around Dec. 10. “Based on the data we have right now, failing to act before then would be a high-stakes gamble,” he said in a statement.

Two pillows on a sofa the Bipartisan Policy Center in Washington DC, one with the Democratic Party symbol of a donkey and the other with the Republican Party Symbol of a elephant. (Photo by Brooks Kraft LLC/Corbis via Getty Images)
A sofa the Bipartisan Policy Center in Washington DC sums up the group's mission with one pillow featuring the Democratic Party symbol of a donkey and the other with the Republican Party Symbol of a elephant. (Brooks Kraft LLC/Corbis via Getty Images)

Oxford Economics recently did its own analysis and found that December tax collections would need to be quite high – about 20% higher than they're forecasting – to push the debt limit date into February, but even that would leave Treasury with a dangerously low cash cushion.

Experts warn that crossing the deadline would lead to a market crash, a possible downgrade of America's credit rating, and the government being unable to pay for things like veterans benefits, federal salaries, and Social Security payments.

Yellen, the Bipartisan Policy Center, and Wrightson ICAP expect to update their debt limit forecasts in the weeks ahead as the deadline draws ever closer.

Ben Werschkul is a writer and producer for Yahoo Finance in Washington, DC.

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