This week in Bidenomics: The debt ceiling 'X Date' begins to menace

·4 min read

Everybody wants to ignore the federal debt-ceiling drama, the flagellation ritual Congressional Republicans periodically inflict on the nation. And it’s usually safe to do that.

But the moment of reckoning is drawing into view, which means investors may need to buckle up and grab the Jesus handle until Congress does its job and gets back to business as usual.

The government officially hit the federal borrowing limit in January, which means the Treasury can’t issue any more debt until Congress passes a new law raising the limit. Treasury can move money around to keep paying the bills for a while. But eventually, Treasury will hit the “X date,” when there’s simply not enough cash to cover all the bills and the government will default on some of its obligations if Congress doesn’t allow it to borrow more.

When is the X date? For a while, it seemed likely to arrive in mid to late summer. But recent reports suggest the X date could come sooner, perhaps as soon as June. That’s because federal tax receipts during the tax filing season appear to be weaker than expected. That leaves the government with less incoming revenue to pay its bills, which means the point at which it will come up short will come sooner.

The Biden administration is due to provide data on recent tax receipts, with an X date update, the week of April 24. “This is a huge catalyst to watch,” Evercore ISI policy strategist Tobin Marcus wrote in a recent analysis. “If we get a June ‘X date,’ hold onto your hats.”

U.S. President Joe Biden convenes the fourth virtual leader-level meeting of the Major Economies Forum (MEF) on Energy and Climate at the White House in Washington, U.S., April 20, 2023. REUTERS/Kevin Lamarque
President Joe Biden's administration is due to provide data on recent tax receipts, with an X date update, the week of April 24. REUTERS/Kevin Lamarque

Republicans and Democrats in Congress have made little progress on a deal to raise the borrowing limit, given the assumption they’d have until August or September to work something out. An earlier X date could turbocharge negotiations, but also spook markets that have been tuning out this needless drama.

For all the brinkmanship, Congress has always raised the debt ceiling, often at the last minute, and prevented the nation from defaulting on its obligations. But the process has inflicted some real damage. The case study is 2011, when ascendent Tea Party Republicans insisted it was worth risking a default to demand spending cuts and reduce federal borrowing.

Congress reached a deal to raise the borrowing limit at the last second. But the United States came so close to defaulting that the S&P 500 stock index fell 17% and took six months to recover. Standard & Poor’s cut the US credit rating by one notch, for the first time ever. Consumer confidence plunged as investors realized that some Republicans were willing to hold the entire US economy hostage to political demands.

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It would be nice to think no political party would be dumb enough to do that again. But there remains a bumptious faction within the GOP that is making strident demands as a condition of raising the borrowing limit. Republicans have just a 5-vote majority in the House, which means most of the 30 or so right-wing diehards would have to vote for a debt-ceiling hike. So a rowdy minority basically holds veto power.

House Speaker Kevin McCarthy recently introduced the Republicans' debt-ceiling proposal, which is a small bit of progress. It includes several major provisions that will never pass the Senate, which Democrats control, such as the repeal of several big measures President Biden signed into law last year. McCarthy will now try to get that bill through the House, which is no sure thing. No Democrats will vote for it and some conservative Republicans may feel it doesn’t go far enough.

Speaker of the House Kevin McCarthy, R-Calif., holds an event to mark 100 days of the Republican majority in the House, at the Capitol in Washington, Monday, April 17, 2023. In a speech Monday at the New York Stock Exchange, the Republican leader accused President Joe Biden of refusing to engage in budget-cutting negotiations to prevent a debt crisis. (AP Photo/J. Scott Applewhite)
House Speaker Kevin McCarthy recently introduced the Republicans' debt-ceiling proposal. (AP Photo/J. Scott Applewhite)

If the GOP bill does pass the House, Biden and his Democratic allies in the Senate will have to start negotiating, to find something that Senate Democrats will vote for with enough GOP support to survive a filibuster. If the GOP bill doesn’t pass the House, then Republicans will have to start over with another plan.

There’s a large, well-funded industry of political analysts in Washington, DC, and none of them knows how the debt-ceiling standoff will end. Biden, for now, is playing it cool by demanding a “clean” increase in the borrowing limit, with no conditions. He calls the GOP proposal the “MAGA economic vision” and claims it will result in massive cuts to government programs millions of Americans rely on. But Biden may ultimately have to make some concessions to get Republican votes for an increase.

It will all be over at some point, but the unknown is whether markets and the economy will carry on as if nothing changed, or require a period of convalescence from political self-harm. Crunch time will be six to eight weeks from the X date, whenever it turns out to be. The window is approaching, and there’s a chance we’re already in it.

Rick Newman is a senior columnist for Yahoo Finance. Follow him on Twitter at @rickjnewman

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