Does U.S. Have Enough Cash to Survive August 2 Deadline?

There is emerging evidence that the Treasury Department may have money to pay U.S. obligations beyond an August 2 deadline -- the date on which a default has been expected to occur. Ward McCarthy, an economist at Jefferies & Co, recently said the government has enough money to make normal payments until August 15. The New York Times puts that deadline at August 10.

Yes, we're only talking about a week or two, but the troubles that the "soft date" creates runs among the debates about the nation's borrowing cap, budget battles, and the timing of potential downgrades of the Aaa rating of the U.S. Assumptions that run from rebalancing of corporate balance sheets to the holdings of money market funds to the timing of the mailing of Social Security funds may all be based on a false premise.

One of the effects of news that the Treasury has money in reserve is that it will empower Congress and the Administration to battle over budget provisions until beyond August 2. The notion that a default will happen on that day has fueled a rush to reach a compromise. Any sign that the government has money to operate another week or more will serve to undermine that urgency.

The suspicion that the U.S. has more money available than is widely thought may have another impact. Analysts cannot understand why there has not been a terrible sell-off in the stock market. Institutional investors may suspect the validity Treasury's August 2 date as well. Why sell shares at low prices during a panic? Better to hold investments for that extra few days the government will not admit it has.

The danger that the financial system faces if it plays chicken with the date on which the federal government defaults is that an incorrect guess could damage the markets horribly as investors stay too long based on an incorrect forecast.


Also See:
10 Smart Investments to Hold If the U.S. Defaults
Who Would You Stop Paying First If Debt Ceiling Isn't Raised?
Debt Ceiling Debate: Why Seniors Are Just Angry


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kernershort

The foreign aid money we give to other countries amounts to about 10 or 20 billion a year. Our budget deficit this year alone is about 1.6 TRILLION. Foreign aid is only about 1% of the deficit! A trillion is one thousand billion - does anybody here understand mathematics? Please stop with the foreign aid already. It is a drop in the bucket.

July 29 2011 at 5:10 PM Report abuse rate up rate down Reply
Dovester

I agree...cut foreign aid...have you looked at how much money the US pays to these countries....In the billions...Mexico, China, Pakistan, Egypt and many others. Our tax dollars...I would think the government could stop or make cut backs in foreign aid and we would have plenty of money to pay the debt. If Americans are not going to get social security, then those countries should not get foreign aid. We give them foreign aid and then borrow it back and then have to pay them back again....Why do we not hear anything about foreign aid from Washington.

July 29 2011 at 1:12 PM Report abuse rate up rate down Reply
muscbdy1

I have an idea....let's start by cutting all foreign aid, especially to countries like Pakistan. I wonder if we could balance the budget by stopping giving money to ingrates!

July 29 2011 at 12:31 PM Report abuse rate up rate down Reply
Alfred

The question isn't whether the U.S. can survive the August 2nd deadline. The debt limit will have to be raised within the next two weeks no matter what - there is simply no other way because the U.S. must keep borrowing to pay all the bills. The real question is, will the Congress put in place a realistic plan that will reduce our astronomical annual budget deficits over the next five or ten years. This year's deficit is 1.6 TRILLION dollars. This gets added on to our 14.3 TRILLION dollar national debt. This kind of insane out-of-control spending is unsustainable and will bankrupt the nation in a few years. If we don't stop this, we will either have a giant default or the Federal Reserve will inflate the money supply by just printing dollars, which will destroy the value of the dollar (and all of our savings as well as fixed income). In short it will be a disaster.

July 29 2011 at 11:34 AM Report abuse rate up rate down Reply
1 reply to Alfred's comment
wch2011

What annual budget? This country hasn't had a budget in over 2 years ( over 800 days ). That you can thank your Democrat friends for. You know the ones. Harry and Dick. And being from Illinois i can assure you he ( Dick) truely is.

July 29 2011 at 3:45 PM Report abuse rate up rate down Reply
josephn126

I do not remember how many times in my life Washington has had to "raise the debt ceiling". The ceiling has needed to be raised to make entitlement payments to mothers who have too many kids and no means of providing for them, seniors who are in long tem care facilities and have no end of life planning, illegals for medical assistance as well as schooling for their kids etc. etc. NOW IS THE TIME TO TAKE THE PAIN and become a rational nation in spending habits--once and for all.

July 29 2011 at 11:04 AM Report abuse -1 rate up rate down Reply
theteleprompter

Geez Obami I tried to post but the dems and libs still dont want to work what ? Oh ok good idea I will write in the word FREE that should get them interested .

July 29 2011 at 10:26 AM Report abuse -1 rate up rate down Reply
theteleprompter

Attention Obama > Your Commander & Thief has asked me to come to this > IN NEED OF A JOB POST "
Lucky ewe Obama has job openings , Obama is in desperate need of the following

Fake Doctors ( FREE white coats handed out by WH staff )
Fake nurses ( FREE clip board )
Town hall props ( Must be able to ask Pre rehearsed questions while keeping a straight face when Obama give you pre rehearsed answer )

Clappers for the audience
Bobble heads > Just stand behind Obama and bob your head up and down ( prefer Botex fixed smile )
Grave trollers ( must not be afraid to troll local cemetaries and write down the names of Voters off headstones TWICE .
Gigglers ( must be able to giggle as soon as Obama MOCKS ) he will hesitate that is your que "
Czars Obama is always in need of czars ( must be able to block freedom of speech )
If you feel you want to work Ken Ya give us a call at 555-LIE-4-LEFTWING
That is all

July 29 2011 at 10:24 AM Report abuse -1 rate up rate down Reply
theteleprompter

No Onama money does not grow on trees

July 29 2011 at 10:14 AM Report abuse -1 rate up rate down Reply
dwuzze

Yes they are more than honest about the deadline. The recovery is stalled and this summer which should have been positive is now bust... The teabags in washington have stalled it, the economy has fallen in the first half thanks to Bonehead policy .... They should have extended it April 2 so business could see some stability ... I've had contracts stalled since then because people are just hesitant .. not for taxes or anything else but uncertainty ... I'll never vote for a teabag or even better ... any republican that will be swayed by them >>> and that is every one of them

July 29 2011 at 9:01 AM Report abuse rate up rate down Reply
amgrplag

Mr. Mccann just said on CNBC that SSI is the cause of the debt crisis. How stupid, if the SSI Trust has been separated from the General Fund and invested at current market rates and the games like the current reduction in the employees contribution rate were eliminated THERE WOULD BE NO SSI SOLVENCY ISSUES. CONGRESS HAS USED THE SSI FUNDS TO AVOID BALANCING THE GENERAL FUND BUDGET FOR DECADES AND IT MUST STOP!!!!

July 28 2011 at 3:45 PM Report abuse rate up rate down Reply
1 reply to amgrplag's comment
Alfred

You don't mean SSI. You mean the Social Security Trust Fund, which by the way, has always been solvent and has in fact been running a surplus. The government has been stealing the money out of the Trust Fund every year to pay for other expenses. Without this systematic theft, the annual deficits would be even larger. Of course the scoundrels in Washington know that they can't pay back the stolen funds, so they say that Social Security is going bankrupt. Since most people read nothing but the sports pages, they believe it.

July 29 2011 at 11:21 AM Report abuse rate up rate down Reply