Debt Limit Update: Still on Track for a Fall X Date

The Bipartisan Policy Center (BPC) has updated its debt limit analysis to incorporate U.S. Treasury financial data through the end of June. The U.S. government is now operating up against its $16.7 trillion debt limit, and the Treasury is using “extraordinary measures” to temporarily create room under the limit in order to continue to pay federal obligations. Since the debt limit was reached on May 19, roughly $100 billion of extraordinary measures had been used through the end of June; roughly $175 billion remain available, along with the Treasury’s cash on hand and incoming receipts, to continue meeting obligations. As expected, an unusually large dividend payment of $66 billion was made to the U.S. Treasury on June 28, reflecting the release of a deferred tax asset by Fannie Mae, which is operating under the conservatorship of the Federal Housing Finance Agency.

Many news reports in recent months have emphasized the falling federal deficit. Nevertheless, we had largely already incorporated such figures in our forecast and thus we continue to project that the X Date – the point at which extraordinary measures and cash on hand will be exhausted and the U.S. Treasury will not be able to pay all obligations in full and on time – is most likely to occur sometime between mid-October and mid-November.

Forecasting government cash flows is inherently uncertain, especially many months in advance. Unexpected changes in economic conditions or policy changes, such as from congressional action, could affect our estimate. One unknown is whether Freddie Mac will release its $30 billion deferred tax asset, which would result in a larger-than-usual dividend payment to the U.S. Treasury by September 30. By itself, however, a $30 billion increase in federal revenues would not be enough to change BPC’s projected X-Date window. We will continue to update our debt limit analysis as events warrant.