Debt Limit Analysis

Jan. 7, 2013

By Steve Bell, Loren Adler, Shai Akabas and Brian Collins

The United States hit its debt limit on December 31, 2012. The Treasury Secretary then began tapping into roughly $200 billion of emergency borrowing authority – referred to as “extraordinary measures” – to allow for an additional period of fully-funded government operations.
In 2011, extraordinary measures extended the federal government’s ability to pay its obligations from May 15 until August 2. They won’t buy as much time as they did last summer.
1. What is the first date on which Treasury will not have sufficient cash to pay all of its bills in full and on time (the “X Date”)?
If we reach the X Date, and Treasury is forced to "prioritize” its payments to avoid a debt default:
2. What would be the effects on government operations?
3. What would be the market risks?

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