by Mitch Kokai
Senior Political Analyst, John Locke Foundation
Andrew Stuttaford of National Review Online reports disturbing news involving the debt ceiling debate.
The prospect of a fight over the debt ceiling is not something to look forward to. However, up to now, there have (mainly) been two working assumptions providing a degree of comfort to the markets. The first has been that “something” would be worked out before disaster struck. The second has been that the crunch could be put off (probably) until August.
That timetable was by no means certain, but there are increasing worries that the reckoning may be in June.
The Financial Times notes a new report from Goldman Sachs:
“While the data are still very preliminary, weak tax collections so far in April suggest an increased probability that the debt limit deadline will be reached in the first half of June. We have been projecting that Treasury could operate without a debt limit increase until early August.
“At this point we see a slightly greater chance that the deadline is in late July, but this could easily change to a base case of early June if tax receipts continue to undershoot.” …
… “A June deadline would raise the possibility of a short-term extension. We are generally skeptical of reports that congressional Republicans might pass a short-term debt limit extension, as voting to raise the debt limit twice is harder than voting once. That said, if the Treasury announces in May that the deadline is only a few weeks away, there would be little time to negotiate a deal and a short-term extension could provide a way out. While not our base case, a June deadline would make a short-term extension a plausible scenario.”
Not a lot of certainty there, which is not unsurprising. The more we know about tax receipts, the clearer (a relative term) the short-term outlook becomes.