Debt ceiling: U.S. nears the 'X Date' as talks continue

Bipartisan Policy Center Director of Economic Policy Shai Akabas joins Yahoo Finance Live discusses ongoing negotiations between President Biden and Congressional leaders to extend the national debt ceiling and avoid default.

Video Transcript

SEANA SMITH: All right, getting to the debt ceiling debate. Both Republicans and Democrats are trying to put a positive spin on those talks, but there's still no deal. New analysis from the Bipartisan Policy Center found that the looming X-date, the date that the U.S. can no longer pay its bills, will fall between June and early August here, with an elevated risk of a hit falling here between June 2 and the 13th. Let's talk about this.

We want to bring in Shai Akabas, he's Director of Economic Policy at the Bipartisan Policy Center. Shai, it's great to see you here. So certainly, some concerning notes in this most recent report that you just published. We are days away to really start-- when we start skating on thin ice. Just how dire is this situation, and when should we really start to worry just about the Treasury's ability to pay those bills?

SHAI AKABAS: Yeah, it's great to be with you. We shouldn't be complacent because we are within a week, or several weeks, of not meeting all our obligations as a country. And that has never happened in the history of the modern United States, and it could lead to really catastrophic consequences. On the other hand, we've seen this debt limit drama play out time and time again.

And every single time, Congress has reached an agreement and extended the debt limit in a timely manner so that we don't see those worst consequences. I am cautiously optimistic that they will get there again. There have been positive developments in the negotiations. I think the contours of a deal are clear, and now it's just a matter of striking the details so that they can sell it to both conferences, pass it through the House and the Senate in time to avoid the X-date, as we call it.

AKIKO FUJITA: With that said, we keep talking about the X-date, the reality is this needs to pass through the House, right? I mean, if we're talking about staying through the Memorial Day weekend, potentially, you look at where the timeline is right now. Yes, we are still just over a week out from the X-date, but how do you see this playing out over the next nine days? Because if we're talking about walking right up to the line, you've got to see a lot of jitters creeping through the market, right?

SHAI AKABAS: Absolutely. Congress rarely gets its homework done early. And this is just on display again. We're going to be coming up to the wire here. We're already at the wire. And now the question is, can the two sides finally come together in the next 24 or 48 hours, shake hands on a deal, sell it to their conferences, get it drafted, get it passed, and get it signed by the President?

That's a lot of steps. I expect that they're going to have to work through the weekend in some shape or fashion in order to get this done. We don't know exactly when that X-date will arrive, which is an added element of uncertainty here. Secretary Yellen has said that it could come any time after June 1.

And that's frankly very consistent with what we've found, that that June 2 to June 13 period presents a really elevated risk. Each day that we go into that period means that we are taking the risk of defaulting on some of our obligations as a country. Again, we should not take that lightly. But ultimately, there is time still for the two sides to reach a deal and get it signed into law in order to avoid these worst outcomes.

SEANA SMITH: So when it comes to potentially reaching that X-date, we're getting close to it. There was in your analysis here that maybe that X-date could be pushed out if they're able to make it to June 15. Talk about the tax revenue, how that plays into that, and how much that could potentially just move that X-date or postpone it.

SHAI AKABAS: Yeah, so this is different from a usual deadline, because we're dealing with hundreds of billions of dollars that are coming in and out of the government each month and trying to project when that's going to deplete the reserves that the Treasury has on hand. We expect that that will-- there's a good chance that will happen during the first part of June. But if it doesn't, quarterly tax receipts come in to the Treasury around June 15 from corporates and individuals who are paying quarterly.

And that would help buoy the Treasury for a little additional period of time to allow them to continue meeting all obligations while Congress continues to work this out. Now, hopefully we won't get there. And frankly, we may not even get there from a Treasury cash perspective, because they may run out before then. But if they do, that would buy a little bit of additional breathing room.

So that shouldn't be a reason for the negotiators to take a couple-of-week vacation and come back and do this later. But it might get to the point where we have that additional period of time and the X-date comes later. That's what's all confusing about this, is because policymakers don't have that firm deadline to work against. And that's what they're accustomed to.

AKIKO FUJITA: Yeah. I mean, that's a lot of hope riding on the process. I mean, what does that buy you, if we're talking about the X-date not being at June 1?

SHAI AKABAS: Well, I don't think it buys you much. Ultimately, the two sides need to reach a deal. And they know what the outlines of that deal are. It's going to be something on spending caps for a certain period of years. And it will definitely affect domestic agencies, and it might also affect defense.

We know that they are in agreement on rescinding certain moneys that have been allocated for COVID that have not yet been spent. And there's a couple other categories of things that they're within range on finding agreement. So that's what the deal is going to look like.

The details are important. But ultimately, if they've narrowed the gap from what the House passed a few weeks ago and what the President proposed in his budget, to where we are today, they've gotten 90%, 95% of the way there. It's just closing the deal and then getting the two sides to agree.

So that's why I'm optimistic that they can get there. But again, we need to be aware of the consequences that are sitting just a little over a week away, where millions of people across the country might not receive the benefits from the government that they're expecting on time.

If that happens, we could see downgrades from credit rating agencies, we could see plunges in stock markets, we could see interest rates rising. We don't know that any of those things will happen because we've never been there before as a country. It's uncharted territory. But the consequences could be really severe.

SEANA SMITH: Talking about those consequences, lots of comparisons to 2011. How today differs from what we were looking at just about 12 years ago, do you think it will play in Biden and McCarthy's favor just in terms of the fact that neither side-- both are under a tremendous amount of pressure, but when it comes down to Democrats and Republicans, neither side wants to be blamed for this?

SHAI AKABAS: Yeah, nobody wins if we default on our obligations as a country. That would be a tragic scar on the reputation that we have globally. Neither side has any interest in getting there. But how we reach from where we are today to a signed bill on the President's desk is a challenge and especially given the period of time that we're working with. So if this were up to a unilateral actor, sure, there would be no chance we would default.

The reason why we're in this situation is it depends on the Republicans and the Democrats and a lot of cacophonous voices within each of those conferences. Again, I have confidence that we're going to get there. But we've hit several bumps along the way, we may hit one or two more. And we'll just keep our fingers crossed that, in the next several days, they'll make that progress that they need to reach the deal.

SEANA SMITH: Certainly a lot of posturing going on. Shai Akabas of Bipartisan Policy Center, thank you so much.