(WASHINGTON) — It’s a dire warning that has reverberated across the country: unless Congress raises the debt limit in exactly seven days, the U.S. economy will head off a cliff.
The Oct. 17 deadline is the cornerstone of President Obama’s argument that lawmakers must act immediately, without delay.
Administration officials and independent economists have warned that failure to meet the deadline could trigger economic shock waves, sending the dollar downhill, causing interest rates to soar and freezing credit markets across the globe. It could thrust the U.S. into a recession worse than 2008, some officials say.
But truth be told, the exact date and time when the U.S. would experience its first-ever default — and set into motion a projected economic catastrophe — remains uncertain.
The nonpartisan Congressional Budget Office has indicated the date the country can no longer pay its bills may not hit until at least Oct. 22, while some Republicans have suggested that the real date is closer to Nov. 1.
Treasury Secretary Jack Lew has said that the nation would exhaust its borrowing authority, or ability to acquire new debt, on Oct. 17, but implied that actual default wouldn’t hit until sometime later. Lew says that on Oct. 17, the government would still have roughly $30 billion cash on hand and continue to collect unspecified daily tax receipts in the ensuing days.
The remaining funds could be expended in a single day or several, administration officials and some economists say, depending upon a number of untested scenarios involving the financial markets.
The nonpartisan Congressional Budget Office projects that if the debt limit is not raised by Oct. 17, the government would run out of cash between Oct. 22 and the end of the month.
“It is possible, however, that the date could fall outside of that range,” the CBO said in a recent report.
“I think everyone knows that Treasury usually gives themselves a little room in the event these things get nasty,” Sen. Bob Corker, R-Tenn., told CNBC on Wednesday.
“In some cases, in the past the Treasury has given itself 60 days leeway,” Corker said. “So in this case I don’t think he’s actually giving himself that much time. There is a date on Nov. 1 where a lot is happening.”
On Nov. 1, the U.S. government is expected to pay out a combined $67 billion to Social Security beneficiaries, Medicare Advantage and Medicare Part D plans, active-duty members of the military and hundreds of thousands of civil service and military retirees and veterans.
Such an outflow would likely exceed any remaining cash reserves in government coffers, assuming the debt limit was not increased, according to government projections.
Some conservative lawmakers claim the Obama administration is overstating the urgency of a potential default.
“It’s in their interest to kind of keep fudging with those numbers and moving them up to create pressure,” Rep. Tim Huelskamp, R-Kan., told ABC News.
“I think the Oct. 17 date…is not the real date,” he said. “We don’t have a payment on debt until Oct. 31 according to the Treasury Department…We have a big one on Nov. 15.”
The government owes a $6 billion interest payment on Oct. 31 and $30 billion quarterly interest payment on Nov. 15, according to the Treasury Department. The government is also expected to pay out $12 billion in Social Security benefits on Oct. 23 and again on Nov. 13.
While the Obama administration has never declared an official projected date of default, Treasury officials have said that it could happen very quickly soon after Oct. 17 if borrowing authority isn’t extended. Net government expenditures on certain days “can be as high as $60 billion,” Lew said in a recent letter to Congress.
Some officials say the precise date of default itself may be a moot point, since even flirting with the deadline can cause substantial negative economic impacts.
The last time the government approached default in 2011, stocks plunged 17 percent and consumer confidence nosedived. The time period between exhaustion of U.S. borrowing authority and technical default is dangerous, uncharted territory, experts say.
“We’ve never actually tested it,” Council of Economic Advisers chairman Jason Furman said Monday. “We don’t know what happens. And we don’t ever want to find out what happens.”
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