Deal or No Deal, Treasury Will Not Default on Oct. 17

Photograph by J. David Ake/AP Images

There’s growing optimism that the Senate is close to an agreement that would reopen the government and raise the debt ceiling. Whether that deal can pass the House is a different story entirely, especially with some Republicans comparing the negotiations to surrender. Which is helpful.

Throughout the debt-ceiling mess, Oct. 17 has been held out as the ultimate deadline: D-day, default day, the day that the heads of those four horsemen appear on the horizon. It is not. Deal or no deal, the U.S. will not default on its debt on Oct. 17. Although some observers, including (Felix Salmon) say we already have because we’re not paying federal workers, that argument is more about the government shutdown and the legal obligation to pay employees, some of whom have returned to work without pay. Plus it shows just how semantic the whole debate is.

In a useful note to clients this morning, Paul Dales, a senior U.S. economist at Capital Economics, points out all the reasons why Oct. 17 is not D-day, though he reiterates that D-day is fast approaching. Oct. 17 is the last day that Treasury will be able to borrow money, leaving it to rely on the $36.5 billion in cash it has on hand. That might seem like a lot of money, but it’s dwindled from more than $200 billion the government had at the end of April.

Dales uses a back-of-the-envelope calculation to measure Treasury’s approximate cash flow: On average for the 2013 fiscal year, Treasury earned about $10.8 billion and spent about $13.3 billion daily, giving it a burn rate of about $2.5 billion a day. That should buy it a few days, a week maybe.

The real trouble looks likely to hit the week after Oct. 17, when two big payments are due: On Oct. 23, Treasury has to make $12 billion in social security payments, and then on Oct. 25 it must pay another $3 billion in federal salaries. Another $6 billion in debt interest payments is due on Oct. 31. If there’s still no deal by then—and Treasury by some miracle has any cash left—the real whammy will hit on Nov. 1. That’s when Treasury has to make a total payment of $57 billion to Social Security, Medicare, the military, and other income-support payments. Game over.

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