Congress is already pushing the boundaries of how long it can go without raising the debt ceiling.
Treasury Secretary Jack Lew has told Congress that lawmakers have only until Nov. 3, less than two weeks, to raise the federal debt ceiling before he runs out of options for managing the debt.
Outside analysis suggests that if the limit isn’t raised by then, the government risks missing a payment on the debt or another of its obligations by mid-November.
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More immediately, the Treasury likely will face increasing borrowing costs over the next few days as concerns about the possibility of a default creep into markets for Treasury bonds.
Here is a timeline of the relevant events:
Over the next two weeks
1. Rising borrowing costs
Over the next two weeks, interest rates on short-term Treasury securities are likely to rise.
Yields on one-month Treasury securities have risen from 0.00 to 0.08 percent in the past four days, according to Treasury data. During the 2013 debt ceiling impasse, yields shot up on short-term Treasuries that matured around the date at which the Treasury was supposed to run out of options.
A Government Accountability Office report found that yields on short-term securities rose from 1 basis point, or one-one hundredth of a percent, in mid-September, to 50 basis points on Oct. 15, two days before the Oct. 17 deadline specified then by Lew.
The increase in yields reflected the possibility that the Treasury could fail to make payments on those securities, as investors required more compensation to buy them. While the risk priced into those yields was still remote, the increase in the weeks before Congress voted to raise the ceiling was significant.
The GAO estimated that the spike in yields ultimately cost the government $38 million to $70 million in higher borrowing costs. Separately, an analysis from researchers at the Federal Reserve Board of Governors found that, “for $100 billion of bills issued just prior to a projected debt limit breach date, the Treasury can expect increased borrowing costs of $70 to $90 million.”
2. The Treasury uses up all its options
The Treasury has been up against the $18.1 trillion debt ceiling since March.
It has managed to pay the bills since then without issuing more debt by essentially shifting funds around in government accounts.
Specifically, it has stopped issuing state and local bonds that count against the limit, held off on investments in Treasuries in a retirement plan for federal employees, stopped investing Treasuries in a fund used to manage exchange rate fluctuations, and slowed investments in a fund for retirees of the postal office.
Lew still has a few tricks left up his sleeve, but only enough to free up enough debt for about three weeks.
Nov. 3
3. On Nov. 3, Lew has informed congressional leaders, he will have used up all the resources he has to create space under the debt ceiling and will have no more ability to issue new debt.
At that point, all he will have to pay debts as they come up will be incoming revenues and $30 billion in cash on hand.
On the same day, according to an analysis by the Bipartisan Policy Center, a Washington think tank, the Treasury has to make a $25.1 billion payment for Social Security, a $5.3 billion payment for Civil Service Retirement and a $2.7 billion payment for the Department of Housing and Urban Development.
Beyond Nov. 3
4. Beyond Nov. 3, the government would be in uncharted territory. In 2013, Congress voted to raise the debt ceiling before the Treasury ran out of options.
Beyond that date, Lew cannot guarantee he will be able to make all payments that come up on time and in full. In a television appearance Monday, he said the Treasury makes 80 million payments each month. Such payments can be large, meaning that the government would be at risk of failing to make one.
After Nov. 3, the next big schedule payment is $3.1 billion for federal salaries on Nov. 6, according to the Bipartisan Policy Center. There would be another $1.6 billion payment for salaries on Nov. 9.
The Treasury likely would be able to pay those debts, but it gets dicey after that. The center projects that the Treasury would be out of cash and unable to make a payment at some point between Nov. 10 and Nov. 19.
During those days, incoming revenue would be unpredictable. Based on past years, in which the government normally runs a steep monthly deficit during November, revenues likely will be between $6 billion and $27 billion most days, according to the think tank.
A $14 billion payment is due for Social Security on Nov. 10. On Nov. 16, $30.4 billion would be due in interest payments on the federal debt, in addition to $2.7 billion in military payments. On Nov. 18, another $13.8 billion payment would be due for Social Security.
It is highly likely that the Treasury would not be able to make one of those payments. At any point past Nov. 3, the government would face the prospect of investor panic, a possibility Lew has said Congress should avert.
