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When Will Congress' Inaction Push U.S. Into Default?


Now, Treasury Secretary Jack Lew has warned Congress tomorrow, the 17th of October, is the day the government will likely have only about $30 billion on hand, which sounds like a lot. But sometimes, daily expenditures get a lot higher than that. This does not mean the government will default tomorrow if Congress does not act. As NPR's John Ydstie reports, the U.S. could manage to get through the next few days. But without a deal, the threat of default rises sharply next week.

JOHN YDSTIE, BYLINE: Hedge funds, economic consulting firms and think tanks have all been crunching the numbers, trying to figure out just how much time Congress really has before its lack of action could push the country into default, a default most believe would be catastrophic for markets and the economy. Paul Edelstein, an economist at IHS, a global consulting firm, says tomorrow probably is not the day.

PAUL EDELSTEIN: If we're talking about missing a debt payment, delaying a debt payment, you don't really have to worry necessarily about the 17th.

YDSTIE: That's because the next big payment of interest on the debt for $6 billion isn't due for two weeks, on October 31st. But that's a technical definition for default. Steve Bell, a veteran of Washington budget battles as a top Republican staffer on Capitol Hill, says technical default is not the key point. He says delaying the payment of any obligation of the government - whether it's interest on government bonds or Social Security checks - would have serious consequences.

STEVE BELL: The fact of the matter is if you don't pay the bills you owe in a timely fashion - and we do about $4 million bill payments a day over at Treasury - you are going to cause economic dislocation, and even before that, market dislocation. You are going to erode confidence.

YDSTIE: Bell is now senior director of economic policy at the Bipartisan Policy Center, a Washington think tank. It's been tracking government revenues and expenditures for some time.

BELL: We've been doing this for three years, and we've learned one thing: every month, revenues come in kind of a unpredictable fashion. We are now saying somewhere between the 23rd and the 30th of this month, it is likely the Treasury will just run out of money.

YDSTIE: The reason it's difficult to pick a single specific date when the government might not be able to meet its obligations is that its revenues - the taxes and fees that fund the government - arrive at the Treasury in uneven and unpredictable daily amounts. But in the last eight days in October, there are close to $25 billion in scheduled payments, including interest on the debt.

BELL: It's extremely unlikely, in our belief, that they will be able to get to the first of November.

YDSTIE: And it's virtually certain they won't get past it. On November 1st, several huge expenditures - totaling about $55 billion - are scheduled, including Medicare payments, Social Security benefits and military pay. But, as Bell says, the failure of the government to meet its obligations could come earlier, on the 23rd, just a week from today.

BELL: The big thing is they have to pay Social Security on the 23rd. That's 12 billion.

YDSTIE: Already, says Bell, the bond markets are showing unprecedented signs of concern about holding U.S. government debt.

BELL: In the 42 years I've been doing this, I have never seen a major fund family like Fidelity announce publicly we will not hold any more October and November-maturing United States sovereign debt.

YDSTIE: Other financial firms are also shunning those U.S. securities. That's because they're afraid the securities will be hard to trade or use as collateral for loans until the Congress acts. And Bell says lenders in Japan, for the first time, are significantly marking down the value of U.S. securities being offered by borrowers as collateral. The warning from the rating agency Fitch that it could downgrade U.S. government debt only adds to the pressure. John Ydstie, NPR News, Washington.


INSKEEP: OK, just a reminder on where we stand today: Our congressional correspondent Tamara Keith tells us that senators are being briefed on an emerging agreement to raise the debt ceiling and reopen the government, brokered by Mitch McConnell, the Republican leader, and Harry Reid, the Democratic leader. Many, many procedural hurdles still to go before that would become law, but the Dow is up sharply today. You are listening to MORNING EDITION, from NPR News. Transcript provided by NPR, Copyright NPR.

John Ydstie has covered the economy, Wall Street, and the Federal Reserve at NPR for nearly three decades. Over the years, NPR has also employed Ydstie's reporting skills to cover major stories like the aftermath of Sept. 11, Hurricane Katrina, the Jack Abramoff lobbying scandal, and the implementation of the Affordable Care Act. He was a lead reporter in NPR's coverage of the global financial crisis and the Great Recession, as well as the network's coverage of President Trump's economic policies. Ydstie has also been a guest host on the NPR news programs Morning Edition, All Things Considered, and Weekend Edition. Ydstie stepped back from full-time reporting in late 2018, but plans to continue to contribute to NPR through part-time assignments and work on special projects.