(Bloomberg News) The U.S. Treasury Department may have enough cash to pay the government's bills for days or even weeks if Congress fails to raise the debt limit before an Aug. 2 deadline, say analysts at UBS AG and Barclays Capital.
The date set by the Treasury is a projection for when the U.S. exhausts its authority to borrow, not when it runs out of money. Chris Ahrens at UBS and Ajay Rajadhyaksha at Barclays say the debt limit may not have to be raised next week, in part because tax revenue is coming in higher than forecast.
"Having borrowing authority is like having a credit card," Rajadhyaksha said in an e-mail yesterday. While the Treasury "will no longer be able to use its credit card" after Aug. 2, "it should still be able to pay its bills on Aug. 3, which is ultimately what matters most."
The extra cash may help the nation stave off a default and buy time for politicians to hammer out a deficit-reduction agreement, Rajadhyaksha said. U.S. stocks fell and Treasury 30- year yields touched a two-week high yesterday as Republicans and Democrats failed to reach a deal to increase the $14.3 trillion federal borrowing limit, boosting the chance the country's top credit rating will be cut.
The Treasury "has another two weeks after Aug. 2 basically of cash flow that's available, and they will pay off the interest on the debt as their No. 1 priority to avoid any default," John Silvia, chief economist at Wells Fargo Securities LLC Silvia, said in an interview on Bloomberg Television yesterday.
The Obama administration and Republican lawmakers have been engaged in daily talks aimed at raising the debt ceiling and reducing the deficit.
A two-step plan by House Speaker John Boehner would raise the borrowing limit by up to $1 trillion and later by about $1.6 trillion while requiring larger spending cuts, according to Republican aides. A competing proposal by Senate Majority Leader Harry Reid would cut $2.7 trillion in spending and give President Barack Obama the full $2.4 trillion in additional borrowing authority he seeks, enough to get through the 2012 elections.
"We don't think there will be a default," Ahrens, head of U.S. rates strategy for UBS in Stamford, Connecticut, said yesterday in a telephone interview. He estimates the Treasury has enough cash to make all payments until Aug. 8-10.
Rajadhyaksha and fellow New York-based Barclays analysts said in a report last week that tax receipts for the five days from July 14 were about $14 billion higher than Barclays had predicted, and outlays were about $1 billion less.