Administration: Aug. 2 remains critical deadline

— Some private economists are suggesting the Treasury may have enough money on hand to pay the government's bills for another two weeks beyond an early August deadline for Congress to raise the debt ceiling. But the Obama administration insisted on Tuesday that it will run out of maneuvering room after Aug. 2.

The projection of private analysts is based on the fact that currently the government is sitting on a large amount of cash - $88.5 billion at the close of business on Monday.

Many analysts believe that this money could be used to meet obligations that are coming due if Congress doesn't raise the borrowing limit by the Aug. 2 deadline.

Economists at several financial firms, including HSBC Securities and Wrightson Research, said that the government may have enough cash on hand to make it until Aug. 15, two weeks beyond the current deadline.

HSBC economists said that Treasury might also sell some assets such as the mortgage-backed securities it obtained during the financial crisis to buy extra time.

"The actual day the Treasury might run out of cash may be closer to Aug. 15," HSBC said in a research note published Monday.

But White House spokesman Jay Carney told reporters at the White House on Tuesday that the critical date was still Aug. 2. That is the date when the Treasury Department says it will have exhausted the bookkeeping maneuvers it can use to allow the government to keep borrowing. Currently, the government has to borrow 40 cents out of every dollar it spends.

Carney said the Aug. 2 date was "not a guess. It's not a political opinion. It is the judgment of career analysts at the Treasury Department. Beyond that date, we lose our capacity to borrow. ... And the result of that risks default for the United States for the first time in our history."

Carney told reporters that officials at Treasury are having discussions with the Office of Management and Budget and the Federal Reserve on what steps could be taken to "manage this impossible situation" if the debt limit is not raised by the deadline. However, he did not provide any specifics and he said the administration continued to believe Congress would act in time.

"Time is running out," Carney said. "So while we remain confident ... we also understand some of the anxiety out there because we are pushing this to the last minute."

Mark Zandi, chief economist at Moody's Analytics, said the administration was being prudent in urging Congress to move while the government still had room to borrow under the current $14.3 trillion debt limit.

He said that the government's current cash on hand and money it expects to collect in August would probably be enough to buy a few more days of time. But he said the risk of miscalculating and missing an interest payment on the debt would also be rising, given the uncertainty of government cash flows.

"When the car is running on fumes, you don't know precisely when it will stop. It could be in the next block or five blocks down the road," Zandi said. "The risks of prolonging the debt debate and prompting a downgrade of the country's credit rating are significant."

The Associated Press


