The US Treasury Secretary wrote a little note to Congress today, informing lawmakers that on October 17, the country, which currently cannot issue debt, will only have $30 billion in cash on hand. That won’t be enough to cover daily obligations that can reach $60 billion. And that means default, technical or otherwise. Watch out for your portfolio, because the markets won’t like that.
This is a far larger problem than the on-going debate over US spending, which could result in the government being shut down this coming Monday (Sept. 30). Currently, a spending bill is winding its way through the Senate—here’s a useful flow chart of the progress. Despite Republican senator Ted Cruz’s overnight speech attempting to delay its progress, it is expected to pass after provisions to end universal health care are stripped out. Republicans are expected to boycott any bill that doesn’t defund the health-care bill, but assuming that Republican speaker of the House John Boehner allows the bill to come to the floor, it will likely pass with mostly Democratic votes. That’s not because they like the amount of spending—it’ll still include budget cuts that everyone from the IMF to US Federal Reserve chair Ben Bernanke say are hurting growth—but to avoid a shutdown.
But immediately after that bill is passed, Congress will have two weeks to raise the debt limit. Will it? Democrats, more moderate Republicans and businesses want to avoid the negative consequences of debt ceiling brinksmanship and fight for their policy priorities another day. The spoiler will be House Republicans upset that the government shutdown denied them what they see as their best opportunity to force the other two branches of government, controlled by the opposite party, to accede to their desires. If you want to know what happens should they fail to raise the limit, consult this terrifying flow chart.