Tracing the Calendar Down to the Last Cent

WASHINGTON - Oct. 17 is the day the Treasury Department expects to exhaust its so-called extraordinary measures to keep paying the country's bills, putting it on the precipice of default. But officials in Washington and traders on Wall Street have a second, yet more dire deadline in mind: Nov. 1.

That is when more than $55 billion in federal payments come due, almost certainly more than enough to use up whatever cash the Treasury might still have on hand. The three weeks between now and then - should Congress fail to raise the debt ceiling - would most likely be ones of market turbulence, plummeting confidence and a slowing economy.

The Treasury Department has remained tight-lipped about any contingency plans it might have for when it runs out of cash, saying only that the administration would not have the legal right to ignore or otherwise maneuver around the debt ceiling.

A Treasury official, speaking on the condition of anonymity, said that Treasury Secretary Jacob J. Lew intended to reconfirm that analysis in Congressional testimony on Thursday: that the Obama administration believes there is no way to work around the debt ceiling, and that the country would simply not have enough money to pay its bills. For that reason, Mr. Lew is expected to again implore Congress to raise the ceiling.

'If you start having a situation in which there's legal controversy about the U.S. Treasury's authority to issue debt, the damage will have been done,' President Obama said at a news conference on Tuesday. 'What people ignore is that ultimately what matters is, what do the people who are buying Treasury bills think?'

The message is that when the cash runs out, the cash runs out. That has left investors and politicians trying to determine what might happen to the economy, the markets and the government if the Treasury is forced to spend only as much as it takes in.

The country hit its statutory borrowing limit last spring, and since then the Treasury has been using a series of 'extraordinary measures' to free up hundreds of billions in cash and continue paying the country's bills on time.

On Oct. 17, the Treasury expects to exhaust those measures, leaving it with about $30 billion in cash on hand. On any given day at that point, outgoing payments might overwhelm the cash reserve, as well as receipts from tax payments or other sources.

Analysts have pored over the government's calendar for scheduled payments and have looked carefully at anticipated receipts, to try to determine when the Treasury would run out of money, with estimates generally ranging from Oct. 22 to Nov. 1.

The Treasury official stressed that tax payments can be volatile, and that on any day after Oct. 17 it might end up short-handed. The official said that the government shutdown had compounded the Treasury's cash management problems, both by creating additional uncertainty about money coming in and money going out and by leaving the department - including its Office of Fiscal Projections - short-staffed because of furloughs.

Major debt rollovers are scheduled for Oct. 17 and Oct. 24, when the Treasury would effectively refinance tens of billions of dollars of loans from investors. A number of large payouts - to Social Security recipients, Medicare providers and the military, among others - will hit on the first of the month.

'It appears very unlikely the Treasury would be able to make all the payments scheduled for that day absent an increase in the debt ceiling,' the Goldman Sachs economists Alec Phillips and Kris Dawsey wrote in a note to clients.

The Obama administration is loath to describe what it would do if the country got close to breaching the debt limit. It has said that all federal payments, like those for retirees and for bondholders, would be put in extraordinary jeopardy after Oct. 17. A report by the Treasury inspector general, though, has shed some light on the planning, indicating that the government believes the best option would be to delay payments, rather than cutting them across the board, for instance. The report did not indicate which payments the Treasury might delay.

The House has passed a bill ordering the Treasury to 'prioritize' payments by putting bondholders first. But the administration has argued that doing so would be technically difficult and would fail to blunt the market reaction to a breach of the ceiling.

'You've actually had the House leadership pass proposals to implement how you would do prioritization, as if that would be an acceptable solution,' Gene B. Sperling, the director of the National Economic Council, said at a breakfast meeting in Washington. 'It is not acceptable. Prioritization is default by another name.'

Pulling the plug on one or more of the Treasury's automated payment systems might be one way to reduce spending, analysts have said. 'The way that they are set up, they can either be set to 'on' or 'off,' ' Credit Suisse analysts said in a note to clients. 'A system either makes all of its payments, or it doesn't make any at all.'

Breaching the debt ceiling would mean that the Treasury would be forced, in effect, to balance the government's budget. It would need to refrain from sending out about 30 percent of the government's payments until Congress raised the ceiling again - enough to tip the economy into a recession in a matter of days or weeks, many economists say.

The financial market implications of a breach would compound the direct economic blow of missed payments. Analysts generally believe that the Obama administration would ensure that bondholders were repaid, to blunt the market effects and protect the full faith and credit of the government.

Some Republicans have used that assumption to argue that the country would not truly default, and that the market reaction might be quieter than anticipated. 'I would dispel the rumor that is going around that you hear on every newscast, that if we don't raise the debt ceiling, we will default on our debt,' Senator Tom Coburn, Republican of Oklahoma, said on CBS. 'We won't. We'll continue to pay our interest.'

But in 2011, the near breach of the debt ceiling raised the government's borrowing costs by billions of dollars. Investment banks, financial advisers and others have warned that even if the country remained current on its sovereign debt payments, the market reaction could be severe.

Already, fear has shot through the markets, with concerns about the debt ceiling and the government shutdown spurring the sharpest drop in consumer confidence since Lehman Brothers collapsed in 2008. The Dow Jones industrial average and other stock indexes have been on a slow and steady decline since mid-September. Market participants, including Fidelity, the mutual fund group, have been fleeing short-term sovereign debt for longer-term sovereign debt. On Tuesday, Treasury bills maturing in one month sold with an interest rate of 0.355 percent, triple the rate charged just a week earlier.

Many investors remain confident that a debt ceiling crisis will not occur, particularly given that Speaker John A. Boehner of Ohio has told some House Republicans that he might allow a vote on a bill raising the debt ceiling that would pass with Democratic votes. Moreover, Washington's flirtations with budgetary or financial catastrophe have inured some market participants to the possibility of a breach in the ceiling.

'Despite all this posturing, we remain confident that neither the president nor the speaker wants a default on their watch,' said Steven Ricchiuto, the chief economist at Mizuho Securities U.S.A. 'We continue to expect that there will be a temporary debt limit extension at the 11th hour if all else fails.'

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