Alec Phillips and Tim Krupa, who work for Goldman Sachs, said on Friday that by June 2, they calculate the US will have just $30 billion left with which to pay its prior debt-limit obligations, and that the account will enter the negative by June 9.
The debt ceiling was reached back in January, but Republicans now in control of the US House of Representatives declined to extend the ceiling, seeing an opportunity in the threat of a default to force Democrats to agree to big budget cuts to which they would otherwise object. But with Democrats defiantly refusing to agree to budget cuts and Republicans intransigent about budget limits as part of a debt ceiling bill, the showdown has dragged on for months.
Still, talks have continued, with US President Joe Biden canceling a tour of Asia to head the negotiations in Washington. US media reports on Friday indicated that Biden and House Speaker Kevin McCarthy (R-CA) were closing in on a deal, but several key issues remained outstanding, including scaling back plans to hire more Internal Revenue Service (IRS) auditors, halting non-defense discretionary spending from increasing beyond their 2023 levels, and whether or not the deal would raise the debt ceiling for one year or two.
A default is almost certain to destroy the government’s credit rating and trigger an economic crisis. In 2011, a similar crisis resulted in Standard & Poor’s and Moody’s bond rating companies downgrading the US federal government from a AAA rating to AA+, even though a default was technically avoided and a deal was agreed to just hours before the default would have occurred.