The Undeadline: Why Halloween Could (Seriously) Be Our Last Day to Save America From Default

Spooky, scary.

What happens if we don't lift the debt ceiling before October 17th?

Would it be a disaster of Biblical proportions? Old Testament, real wrath-of-God-type stuff? Fire and brimstone coming down from the skies? Rivers and seas boiling? 40 years of darkness, earthquakes, volcanoes, the dead rising from the grave? Human sacrifice? Dogs and cats living together? Mass hysteria!?!

Well, no. That wouldn't happen until October 31st.

It's hard to know exactly when the debt ceiling will blow the world economy up into small enough pieces that we all could fit some in our pockets. But here's what we do know. On October 17th, the Treasury will run out of "extraordinary measures" (aka accounting tricks) to keep us under the debt ceiling. After that, the Treasury wouldn't be allowed to borrow new money to pay for already-authorized spending. Now that would be bad, but not end-of-the-world bad. At least not for a few more days. See, the Treasury would still have $30 billion of cash reserves on hand, and have even more revenue coming in after. That's why the Bipartisan Policy Center (BPC) figures we could keep paying all our bills on time and in full until some time between October 22nd and November 1st. And that's when it begins to look like armageddon.

It's what BPC calls, dramatically enough, the "X-date." It's the date when the Treasury wouldn't have enough cash to pay all our bills on time. Instead, it'd have to pay about 32 percent of our bills late. And it'd have to pay more and more of them late the longer and longer a standoff lasts. Whether we hit the X-date on October 22nd or November 1st or some time in between would depend on whether investors would keep buying our bonds when we try to roll them over.

Now, as crazy as it sounds, the threat of default would probably make investors want our bonds more than ever. After all, people flee to the safety of our debt when things look grim, and a debt default would make things look real grim real fast. But that's just a best guess. The X-date would come sooner if it turns out investors wouldn't want our bonds.

But as you can see in the chart below from Cardiff Garcia of FT Alphaville, the most likely X-date is around October 31st or November 1st. That's when the Treasury has big piles of payments to make, and won't have big piles of cash left. Even worse, some of those payments are interest payments (the yellow) -- which means there's some risk we could actually default on some of our debt.

This is when dogs and cats might start moving in together. If we're lucky, breaching the debt ceiling would "only" mean catastrophic austerity. If we're not, it would mean catastrophic austerity plus a financial crisis. But in either case, the austerity would get more catastrophic the longer it lasts. That's because the initial austerity would kneecap incoming revenues, which would make the subsequent austerity even worse.

So it's a small comfort that the debt ceiling deadline isn't on October 17th. It's more like an undeadline on October 31st. (I'll be here all day). But what's an actual comfort is that the kabuki looks like it's over, and House Republicans will finally just lift the debt ceiling. That's an obvious relief, but it's an even bigger one that you might realize. A non-apocalypse on October 17th almost certainly would have emboldened default deniers on the right. Republicans would have said that not lifting the debt ceiling wasn't that bad -- that it was all scare tactics by the administration.

And then the economy would have started to collapse, and we might have missed a debt payment. You know, dogs and cats.

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Matthew O'Brien

Matthew O'Brien is a former senior associate editor at The Atlantic.

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