01:33 - Source: CNN Business
The debt ceiling drama: Why US might default and how it affects you
CNN  — 

The Treasury Department is steadily draining the funds it has to pay the nation’s bills during the debt ceiling impasse.

Treasury had $57.3 billion in cash on hand as of Thursday, according to federal data. The amount bounces around as the agency takes in revenue and makes payments, but the balance has declined from $238.5 billion at the start of the month, when the coffers were relatively flush from tax collections in April.

Ever since the US hit its borrowing cap in January, Treasury has been forced to rely on cash and extraordinary measures to pay the bills until Congress addresses the debt ceiling. The agency had about $92 billion remaining in extraordinary measures as of Wednesday, down from around $220 billion at the end of January.

Treasury Secretary Janet Yellen has repeatedly warned lawmakers that her ability to avoid default could end as soon as June 1. The nation needs to borrow money to make its payments since its obligations exceed its revenue.

More on the debt ceiling

  • Five ways a debt default could affect you
  • Get up to speed on the US debt drama
  • How the 14th Amendment factors into the debt ceiling debate
  • If US defaults on its debt, Treasury would have to decide how to pay the bills
  • Here’s how we know a US default would be an economic disaster

  • Just when the nation will hit the so-called X-date, when the US would default for the first time in history, is not known. It depends greatly on how much tax revenue comes in over the next few days and weeks. If it’s lower than expected, as it was for the 2022 tax season’s collections last month, Yellen could soon run out of runway to keep paying the bills in full and on time.

    The secretary may not know when the nation will default until a day or two before, said Ben Harris, who served as assistant Treasury secretary for economic policy until earlier this year.

    Take a situation where the balances dwindle to just a few billion dollars: If Treasury is relying on receiving a certain amount of revenue on a certain day to cover payments, but it comes in several billion dollars short, it could spark a default.

    “Treasury has guidelines for how much cash is prudent,” Harris said, noting that it’s set at one week’s worth of expenditures, with a minimum balance of $150 billion. “We are certainly below that level right now.”

    While Yellen, the Congressional Budget Office and multiple other forecasters peg the X-date as likely hitting during the first two weeks of June, it’s possible that Treasury will have enough funds to carry it through the middle of the month.

    If that’s the case, then it’s likely the government won’t default until later in the summer. The agency will get another injection of funds from second quarter estimated tax payments, which are due June 15, and from $145 billion in an “extraordinary measure” that becomes available at the end of that month.

    Talks stall

    Although the X-date is potentially around the corner, White House and House Republican negotiators paused their talks to resolve the debt ceiling impasse for a time on Friday. Negotiations resumed later in the evening on Capitol Hill.

    If the nation does default, it would unleash global economic and financial upheaval. The full consequences are not known since it’s never happened before, but it’s likely that many Americans, businesses and state and local governments would face delays in receiving federal payments, including Social Security benefits, food stamps and paychecks for federal employees and military members.

    “It behooves negotiators to seek a resolution in coming days,” said Rachel Snyderman, senior associate director of economic policy at the Bipartisan Policy Center.

    This story has been updated with additional developments.