The X Date: What Happens After August 2nd?

The Bipartisan Policy Center crunches the debt-ceiling numbers. It finds that the the date on which the Treasury will no longer be able to pay all its bills--the X Date--will be "no earlier than August 2nd and probably no later than August 9th."

What would happen next? There is no precedent, says the BPC. After looking carefully at the Treasury's projected daily outflows and inflows, the presentation concludes that federal spending would have to be cut immediately by 44%. With decisions then having to be made on a day-by-day basis,  prioritizing spending would be very difficult and "the reality would be chaotic". The government has nearly $500 billion in debt to roll over during August, at a time when a spike in uncertainty plus threatened or actual debt downgrades would be pushing up interest rates.

"The risks are real," says the BPC. No kidding.

Update: The Committee for a Responsible Federal Budget has updated its "Realistic Baseline":

Under its Extended Baseline Scenario, CBO bases its projections on current law, which assumes many things that are unlikely to occur, including the expiration of all the 2001/2003/2010 tax cuts and the discontinuation of the regular policy of enacting "AMT patches" and "doc fixes."

Under its Alternative Fiscal Scenario, CBO lays out a more fiscally pessimistic path, where policymakers increase discretionary spending this decade at the rate of GDP growth, revenues stop growing as a share of GDP altogether after 2021, and the cost controls enacted under Health Carereform (PPACA) are ineffective or overridden after 2021.

CRFB's Realistic Baseline uses a set of realistic assumptions that fall between these two scenarios and is consistent with a "current policy" path. Under this baseline, debt would rise from 69 percent of GDP today to 88 percent in 2020, 140 percent in 2035, and 437 percent by 2080.