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The Debt Ceiling "X-Date" Is Back: May Hit As Soon As February 28

Tyler Durden's picture





 

While everyone focuses on the turmoiling in Emerging Markets, a good, old standby is back - the periodic "debt ceiling" IMAX tragicomedy.

Recall that the debt limit, which has been suspended since October 17, is scheduled to be reinstated on February 8. At that time, the nation will be operating right at the debt limit, and the Treasury Department will use extraordinary measures to temporarily issue additional public debt to meet federal financial obligations as it always does during episodes of political posturing that without fail take place until the 11th hour, 59th minute, and 59th second. However, unlike last year when there was a 5 month interval between hitting the debt ceiling, and the day the Treasury's funds fully ran out - the infamous X Date - this time the emergency measures will only last a limited time.

As the Bipartisan Policy Center calculates, approximately $198 billion of extraordinary measures will be available this time.

What this means when looking at a calendar, is that the Treasury may not have sufficient cash-on-hand to cover all obligations due as soon as February 28. Because February historically has a high cash deficit, due to the start of tax-filing season and the payment of income tax refunds, extraordinary measures will be exhausted quickly. The delay in the tax filing season, resulting from the government shutdown, has exacerbated this situation.

After that point, Treasury would no longer have any borrowing authority and all obligations would have to be paid out of cash-on-hand and incoming revenues. Extraordinary measures could well be exhausted before February 28. The risk of serious, negative financial market and economic consequences would rise significantly in an environment where Treasury has no capacity to borrow additional funds to meet unforeseen challenges.

In other words, the debt ceiling drama is back on. What it also means is that like every other time, the only question is just how creatively will John Boehner fold once more to every demand by an administration whose approval rating is on part with that of Dubya, all the while pretending to be fiscally conserative.

This is what the X-Date projection looks like depending on the best and worst cash in/out scenarios:

 

February 28 as a first potential X-Date also explains the Bill yield cliff between February 23 maturies which are yielding negative, and bills on February 27 and subsequent, whose yield jump due to fear of potential debt ceiling negotiation complications.

Some more observations from the BPC"

BPC now projects that the X Date will likely occur between February 28 and March 25. However, even under a very optimistic scenario, the government would be less than $5 billion away from the X Date on March 14. To put this in perspective, one day’s spending in March would typically be more than $10 billion. As such, there is a high probability that the X Date could occur on or in the days before March 14. If Treasury is able to get past Friday, March 14 without exhausting cash-on-hand, receipt of corporate income taxes due on Monday, March 17 could buy another week or so. But a scenario in which the X-Date occurs after March is extremely unlikely.

 

BPC’s estimated range can be thought of as a confidence interval. Although unlikely, there is a small chance that the X Date could fall outside of this range – either earlier or later. At this time, it is not possible to provide a more precise estimate. This is because the amount and timing of cash flows are especially volatile in February and March due to the payment of income tax refunds, which can range each day from as low as $2 billion to higher than $13 billion.

 

Significant financial transactions are scheduled to occur in the February 28 – March 25 period and beyond. On February 28, both a $17 billion payment to Medicare plans and a $5 billion interest payment on the public debt are scheduled, along with smaller payments for military pay and veterans benefits. On March 3, a $26 billion Social Security payment is due, and $12 billion Social Security payments are due on March 12 and March 19. Absent an increase or suspension of the debt limit, Treasury’s ability to make those payments in-full and on-time would not be guaranteed.

 

As of late January, Treasury is scheduled to roll-over about $250 billion of maturing securities in the month of March, and this amount will increase as Treasury schedules additional short-term auctions in the days ahead. As the X Date approaches without action on the debt limit, one risk is that buyers of government debt will be less likely to participate in Treasury auctions and, for those that continue to participate, more likely to demand higher interest rates, increasing the cost of servicing the existing debt. Past analysis from BPC and the Government Accountability Office shows that the debt ceiling confrontation in 2011 cost American taxpayers $1.3 billion in Fiscal Year 2011 and $18.9 billion over a decade. At least a similar, if not greater, cost could occur in this standoff simply because the total level of debt outstanding and subject to risk is 20 percent greater today than it was in 2011.

Once again it is nearly popcorn time, even if everyone knows how this soap opera ends.

 


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Thu, 01/30/2014 - 15:53 | Link to Comment Say What Again
Say What Again's picture

No problem.  All of the MyRA investors will bail out the treasury.  Oh wait.  The program won't be ready in time.  The web site will take forever.

Thu, 01/30/2014 - 15:53 | Link to Comment drink or die
drink or die's picture

No, that money is put in a secure lock box.  The government would never dare touch it!

Thu, 01/30/2014 - 15:59 | Link to Comment pods
pods's picture

"No risk of that"

BernanQE

Thu, 01/30/2014 - 16:06 | Link to Comment hedgeless_horseman
hedgeless_horseman's picture

 

 

After that point, Treasury would no longer have any borrowing authority
and all obligations would have to be paid out of cash-on-hand and
incoming revenues. Extraordinary measures could well be exhausted before
February 28. The risk of serious, negative financial market and
economic consequences would rise significantly in an environment where
Treasury has no capacity to borrow additional funds to meet unforeseen
challenges.

I know that all sounds pretty bad.  However, don't get too dejected.  Napolean says, "We can finish the windmill by then, if we just work harder."

Thu, 01/30/2014 - 16:08 | Link to Comment Panem et Circus
Panem et Circus's picture

+1 for the literary reference. Too bad most of us don't read books anymore, might be in a better place if we did.

Thu, 01/30/2014 - 16:16 | Link to Comment The Vineyard
The Vineyard's picture

Same old story.  Same old song and dance.  Decomcrat and Republican bullshit.

Thu, 01/30/2014 - 17:08 | Link to Comment 101 years and c...
101 years and counting's picture

but a stock collapse now would benefit the top 1%.  retail is finally all in.  leverage is maxed out.  expect this debt ceiling "deal" to take longer and possibly even a "technical default" to happen.  afterall, crashing stocks is a sure fire way to pass even more money UP the ladder.

Thu, 01/30/2014 - 15:52 | Link to Comment Music101
Music101's picture

Here we go again.. It's a crazy WORLD OF DEBT!!! See Video Below ... "WORLD OF DEBT":

http://www.youtube.com/watch?v=99xsqxzJnXs

Thu, 01/30/2014 - 16:19 | Link to Comment Sudden Debt
Sudden Debt's picture

AND SUDDENLY THE DEBT IS AT 18 TRILLION AT THE END OF FEBRUARI!!

Those govenrment workers are having a party yet again!!

Maybe they'll get another DOUBEL PAID VACATION BITCHEZ!!!

Thu, 01/30/2014 - 17:06 | Link to Comment Mercuryquicksilver
Mercuryquicksilver's picture

And the Fed Employee says Yay, paid vacation plus unemployment. Party on.

Thu, 01/30/2014 - 15:51 | Link to Comment Dewey Cheatum Howe
Dewey Cheatum Howe's picture

Stock market crash around Feb 10th - 20th if they can't come up with a new deal? MyIRA for the stick save...

Thu, 01/30/2014 - 19:56 | Link to Comment garypaul
garypaul's picture

,  +64,000,000,000,000

Thu, 01/30/2014 - 15:52 | Link to Comment Overfed
Overfed's picture

MyRA appeared just in time to save us all!

Thu, 01/30/2014 - 16:14 | Link to Comment Sudden Debt
Sudden Debt's picture

they can't arrange that so fast.
and that money is to buy out china

imagine... Obama is giving the chinese all the American retirement savings... who would have tought...

Now we know what Timmy was discussing back in the day when he was called to china for a urgent meeting

Thu, 01/30/2014 - 15:53 | Link to Comment ForWhomTheTollBuilds
ForWhomTheTollBuilds's picture

Now correct me if I'm wrong, but as part of Boehner's utter, craven cave-in during the last set of negotions, the way it will work this time is that Obama will write a new debt ceiling number on a napkin and send it over to the congress.  Unless the Congress can muster a super-majority, the new debt limit will be that number.

 

So the days leading up to Feb 28 should be relatively uneventful as far as markets go.  People will be yelling all kinds of stupid shit but none of it will amount to anything (the shit will be even more extreme and stupider than last time since it has no import).

 

I'm all for narrating our decline into the abyss, but this round of debt ceiling debates will be a big nothing-burger.

 

 

Thu, 01/30/2014 - 16:01 | Link to Comment kralizec
kralizec's picture

Yes.  Big nothingburger.  The Giant Weeping Carrot will roll over and give it up faster than a cheap date on prom night.

Thu, 01/30/2014 - 17:48 | Link to Comment B.J. Worthy
B.J. Worthy's picture

Boner goes limp.

Thu, 01/30/2014 - 16:42 | Link to Comment SDShack
SDShack's picture

The only thing that could upset the markets is if 0zer0 asks for such a huge debt limit increase, that the Fed gulps at the pending dollar collapse it will cause. That would spike commodities, just like before the Arab Spring, and we will have Arab Spring 2.0, but in a lot more places then just N.Africa. Hell, just look at the Ukraine. Too much risk of something sprialing out of control. So TPTB will try for a smaller debt limit increase. Just enough to get through the 2014 mid-terms. Bank on it.

Thu, 01/30/2014 - 15:57 | Link to Comment LawsofPhysics
LawsofPhysics's picture

That "MyIRA" will fix it, if not, they will start rehypothicating 401ks.  Get your ammo while it's on sale.

Thu, 01/30/2014 - 16:02 | Link to Comment TheRideNeverEnds
TheRideNeverEnds's picture

market don't care, they are buying e-minis like it is going out of style.

 

 

E-minis 'ere! I got your e-minis right here!

 

 

Thu, 01/30/2014 - 16:07 | Link to Comment 10mm
10mm's picture

Forget MyRa. It's for the extreme downtrodden.  One can put in as little as 5.00. Yes, big market belch for the home run,  IRA's and 401's.

Thu, 01/30/2014 - 16:06 | Link to Comment Bryan
Bryan's picture

They should change that date to February 30 instead.  They would never have to pay, and the masses would never figure it out.  Perfect solution.

Thu, 01/30/2014 - 16:09 | Link to Comment Panem et Circus
Panem et Circus's picture

You sir, should run for political office!

Thu, 01/30/2014 - 16:16 | Link to Comment Bryan
Bryan's picture

I'm afraid a political orifice is not big enough to fit my personality.

Thu, 01/30/2014 - 16:37 | Link to Comment SDShack
SDShack's picture

Yep, that's right up there with "We have to pass the bill to see what's in it."

Thu, 01/30/2014 - 16:21 | Link to Comment Sudden Debt
Sudden Debt's picture

OKAY, THIS IS HOW THE GAME IS GONA BE

YOU WORK
50% OF YOUR SALARY GOES TO OBAMACARE
50% GOES TO YOUR RETIREMENT SAVINGS THAT YOU'LL GET BACK WHEN YOU'RE 200 years old...
AND YOU GET FREE GOVERNMENT FOODSTAMPS!!

HALELUYAH MASA!!

Thu, 01/30/2014 - 16:21 | Link to Comment John Law Lives
John Law Lives's picture

"Once again it is nearly popcorn time, even if everyone knows how this soap opera ends."

It starts with "alarm", it continues as Kabuki theater, and it ends with yet another increase in the debt ceiling.

Thu, 01/30/2014 - 16:20 | Link to Comment 10mm
10mm's picture

Im wondering if that DHS insider Rosebud is on to something.

Thu, 01/30/2014 - 16:35 | Link to Comment AL_SWEARENGEN
AL_SWEARENGEN's picture

Barry bonds!  Just in time.

Thu, 01/30/2014 - 16:37 | Link to Comment FieldingMellish
FieldingMellish's picture

Debt ceiling? Panic? Financial distress? SELL GOLD NOW!

Thu, 01/30/2014 - 16:54 | Link to Comment thismarketisrigged
thismarketisrigged's picture

i fucking hate this shit.

 

all it is, is another excuse to pump the s&p 200 pts when they suspend it again.

 

we all know how this works, i would love this fucking ''market'' to fucking die, all bankers to jump,  etc, but we know how this ends already

Thu, 01/30/2014 - 17:03 | Link to Comment Fiat Burner
Fiat Burner's picture

This whole charade is a manufactured crisis to convince the public that the ceiling is the problem and not the debt. When in truth, it is the exact opposite.  Next step is to convince the public that the best thing to do is eliminate the ceiling entirely.

Thu, 01/30/2014 - 17:13 | Link to Comment DontGive
DontGive's picture

AKA, going full retard.

Thu, 01/30/2014 - 18:26 | Link to Comment DoubleTap
DoubleTap's picture

Debt isn't the problem, just ax Greenspan. Guaranteeing the purchasing power of the dollar is the problem. No debt too big for the FED.

Thu, 01/30/2014 - 17:47 | Link to Comment B.J. Worthy
B.J. Worthy's picture

Barry whining about Congress "not paying its bills" in 3... 2... 1...

Thu, 01/30/2014 - 19:31 | Link to Comment Colonel Klink
Colonel Klink's picture

FUCK YOU Lack Jew and John "I fold like a cheap suit" and "Teh weeping cheetoh" Boehner!!!

Do NOT follow this link or you will be banned from the site!