Last week Barclays Capital estimated that the US might actually have until August 10 before it runs out of money and faces default (assuming that matters don’t improve in Congress).
Now others are jumping on that bandwagon.
Wells Fargo’s chief economist John Silva said he believes the US could avoid default for at least another month after August 2, according to Bloomberg:
“The Federal Reserve and the Treasury can work together to generate enough cash probably for the next two or three months to avoid any kind of automatic default on the Treasury debt,” Silvia, who is based in Charlotte, North Carolina, said in an interview on Bloomberg Television’s “In the Loop” with Betty Liu. “There’s a way of getting around this issue for at least another month or two.
USA Today, meanwhile, cites another set of pundits that are willing to stretch out the dates:
Stone & McCarthy Research Associates estimates Treasury will be able to meet its obligations until Aug. 15, possibly longer. Wrightson ICAP, a research firm, also expects Treasury to have until Aug. 15 before it runs short of cash.
The Bipartisan Policy Center (BPC) estimates that the U.S. will run out of cash some time between Aug. 2 and Aug. 10. Jay Powell, author of a widely followed BPC report on the debt limit, says it remains too difficult to project a drop-dead date.
Others quoted in the Bloomberg story postulated that the Fed stretch things out out by as much as a few months by simply extending a line of credit to the Treasury.
Given that a bill to extend the ceiling would need to be somewhere in the Congressional process by this Wednesday in order to meet the August 2 deadline, let’s hope at least some of them are right.
Although that doesn’t mean a ratings downgrade is out of the question. Remember S&P’s warning:
We may also lower the long-term rating and affirm the short-term rating if we conclude that future adjustments to the debt ceiling are likely to be the subject of political maneuvering to the extent that questions persist about Congress’ and the Administration’s willingness and ability to timely honor the U.S.’ scheduled debt obligations.
But even so, there’s that Citi estimate that a one-notch downgrade may not matter much anyway, because many classes of Treasury investor will neither be compelled nor particularly willing to part with their holdings. And some would argue that ratings agencies’ predictive powers are rather less than their other powers.
Of course, predicting the markets’ reaction to this endangerment of a previously safe haven is tricky business. And predicting the future is, in general, not the most rewarding pastime around.
Related links:
Goldman’s countdown to debtmageddon – FT Alphaville
The debt ceiling: break in case of emergency – FT Alphaville