US Treasury Could Run Out of Cash by Mid-October, Think Tank Warns as Government Shutdown Looms

US Treasury Could Run Out of Cash by Mid-October, Think Tank Washington as Government Shutdown Looms

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On Monday, Senate Republicans plan to block a key bill to raise the US debt ceiling, a scenario that may result in a government shutdown early next month.

The US government may face the "X Date" in the first quarter of October, when the Treasury Department is expected to “exhaust its cash on hand” to pay its bills, a new analysis has claimed.

According to the forecast by the Washington-based non-profit think tank Bipartisan Policy Centre (BPC), if US policymakers “do not act on the debt limit, Treasury will most likely have insufficient cash to meet all its financial obligations sometime between 15 October and 4 November”.

“After running out of cash, Treasury will be unable to meet approximately 40% of all payments due in the several weeks that follow. How Treasury would operate in such an environment is unclear. Prioritisation and delayed payments are two possibilities, but substantial uncertainty exists about operationalising them”, the analysis argued.

In this vein, BPC urged policymakers “to act in the coming weeks if they intend to ensure that all obligations of the US government are paid in full and on time”.

The analysis comes after Federal Reserve Chairman Jay Powell said on Wednesday that the US should not be allowed to default on its debt and that Congress must raise the ceiling on US borrowings appropriately.

This followed Treasury Secretary Janet Yellen warning that congressional failure to increase the debt limit would “plunge” the US into a financial crisis.

“The US has always paid its bills on time, but the overwhelming consensus among economists and Treasury officials of both parties is that failing to raise the debt limit would produce widespread economic catastrophe”, Yellen wrote in an op-ed in The Wall Street Journal last Sunday.

The White House, in turn, warned earlier this month that billions of dollars in state aid and federal funding for various programmes could be stopped if the Congress fails to clinch a deal on raising the US debt ceiling.

The statement came after Senate Minority Leader Mitch McConnell made it clear that Republicans won't support raising the federal borrowing limit and that the Democrats should do it on their own.

If Democrats “want to tax, borrow and spend historic sums of money without our input, they’ll have to raise the debt limit without our help”, McConnell stressed.

On Monday, a bill to this effect, which was earlier approved by the House, heads to Senate where it will most likely be blocked by a Republican-led filibuster.

If Democrats and Republicans fail to arrive at a consensus on the matter by the beginning of October, the US government will be shut down.

"In these days of hyperpartisan party politics, it's a given that the Republicans will oppose any financial moves Biden makes. But his own party is a broad tent, spanning radical progressive to conservative centrist wings. His Congressional lieutenants, Nancy Pelosi and Chuck Schumer are currently working overtime to keep their own team on board. If they lose a few disaffected legislators, Biden's ambitious economic recovery agenda could swiftly crash and burn. And if the budget isn't passed, Federal agencies will shut their doors. For how long no-one knows. Donald Trump holds the record at 35 days. But even a few days for Biden will be a major setback with domestic tarnish to be added to his current poor international reputation", says Mark Shanahan, expert in US politics from the University of Reading.


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