One day after NY Fed president John Williams (who apparently was not daytrading stonks and has not resigned unlike his Boston and Dallas Fed pals) warned of an “extreme” market backlash if the US debt ceiling is not raised (hitting even FOMC members’ wealth!) and just hours after Republican Senators blocked a Democratic Bill to raise it as was widely expected, this morning Janet Yellen sent yet another letter to Nancy Pelosi urging her in no uncertain terms to raise the debt ceiling.
And while the message is familiar (fire and brimstone to follow unless the US can keep its perpetual debt engine going), there was one piece of news: according to Yellen, the Treasury now estimates that the "drop dead date", i.e., the date at which the Treasury will exhaust all of its extraordinary measures if Congress has not acted to raise or suspend the debt limit, will be October 18, a more accurate forecast than her previous "sometime during the month of October."
This is in keeping with the chart we previously showed the gradual decline in Treasury cash over the next few weeks, which of course is very fluid and which indicated a Drop Dead Date in that vicinity.
What happens beyond October 18? As Yellen notes, "at that point, we expect Treasury would be left with very limited resources that would be depleted quickly. It is uncertain whether we could continue to meet all the nation's commitments after that date."
Yellen also hedges noting that "the government's daily gross cash flow (excluding financing) over the past year averages nearly $50 billion per day and has exceeded $300 billion. As a result, it is important to remember that estimates regarding how long our remaining extraordinary measures and cash may last can unpredictably shift forward or backward. This uncertainty underscores the critical importance of not waiting to raise or suspend the debt limit. The full faith and credit of the United States should not be put at risk."
In any case, the former Fed chair (whose stock trades have never been made public) said not to wait until the last minute:
... we know from previous debt limit impasses that waiting until the last minute can cause serious harm to business and consumer confidence, raise borrowing costs for taxpayers, and negatively impact the credit rating of the United States for years to come. Failure to act promptly could also result in substantial disruptions to financial markets, as heightened uncertainty can exacerbate volatility and erode investor confidence.
In short, another attempt by the Treasury to scare Congress into action even we already know that Senate Republicans puked on the Democrat attempt to extend the debt limit to Dec 2022.
And now, Democrats have a very narrow interval of time how to move forward and with no clear alternative to overcome the filibuster except using a budget procedure that could take nearly two weeks according to Bloomberg, which notes that "the GOP maneuver sets the stage for a protracted debate over debt that Republican lawmakers hope will help them portray Biden’s expanded child tax credits, paid family leave and new benefits for Medicare recipients as out-of-control government spending. An eventual Democrat-only vote to raise the debt limit would provide fodder for election attack ads."
Yellen's full letter is below.