CBO Warns US Treasury May Default as Soon as July

I mean, just going through some of the headlines here, both in terms of the CBO's forecast for the economic conditions and their commentary about the Treasury's options to avoid that proverbial fiscal cliff here, not too much of a surprise in this report, was there? No, not a shock. A lot of the budgetary and economic projections are a bit worse than they were a year ago, but the urgent thing is when is the so-called X date, the deadline for a debt limit deal. Now, they are using the so-called extraordinary measures to drag that out as long as possible, but the official word from the CBO is that deadline is going to be sometime between July and September. Ultimately, it may not matter exactly when in that range it's going to be. Congress takes a recess in August. They don't want to wait until the very last moment. So remember that Kevin McCarthy has said, we don't need to wait for five or six months to get a deal.

This is a reminder that this has to happen this summer. They could discuss ways of pulling back spending to try to bump that back a little bit, but really Congress knows based on this that they need to get moving and they need a deal in the summer. They probably don't even want to wait until July because they do tend to wait until deadlines, but this is a dangerous deadline to stall on. Right. And for this reason, we did see Kevin McCarthy and President Biden begin to hold discussions last month. What can come of that in terms of movement towards addressing how they may bridge their gaps? The only concrete thing that came out of those early meetings were really that they took entitlements off the table. That may not be helped along by the CBO report because it projects that a lot of the increase in the deficit over the next 10 years is largely either Social Security, Medicare or interest payments.

So there's discussions about limiting agency budgets, things that don't exactly turn around in terms of the fiscal situation in the country, but they at least narrowed the field a little bit. They're going to have some meetings to really strike a deal, though.

Bloomberg