There’s a bomb rapidly approaching detonation. Not a literal bomb, but a fiscal one in the form of the U.S. defaulting on its debts—and no one really knows exactly when it might detonate.
Since the U.S. hit its borrowing limit in August, the Treasury Department has been moving money around to try to cover its obligations, a process that’s called “extraordinary measures.”
But this is only a short-term fix—Congress needs to raise the debt limit. If lawmakers fail to act, the Treasury will eventually run out of money, and the U.S. will need to make tough calls on who gets paid with the money available and what’s left to default.
After weeks of citing a mid-October deadline, U.S. Treasury Secretary Janet Yellen on Tuesday estimated that the Treasury Department would run out of money by Oct. 18 if Congress has not acted to raise or suspend the debt limit. “While this is our best estimate, the federal government’s cash flows are subject to unavoidable variability,” Yellen hedged.
The Congressional Budget Office’s latest report on situation issued Wednesday failed to pinpoint a date at all, simply stating “if the debt limit remains unchanged, the Treasury’s ability to borrow using extraordinary measures will be exhausted, and it will most likely run out of cash near the end of October or the beginning of November.”
Why is it so hard for the U.S. government to calculate when the money runs out?
The timing of federal government revenues and spending on a daily basis is highly uncertain. While some expenses like Social Security are pretty predictable, others like Medicaid claims are more dynamic. There’s less predictability around when states are going to submit claims and for how much. The effects of the COVID-19 pandemic and federal disaster relief have exacerbated that unpredictability, says Mark Zandi, chief economist of Moody’s Analytics.
“The pandemic has scrambled the timing of tax payments and outlays related to pandemic support,” Zandi tells Fortune. “The timing of when the federal government cuts a check to help with disaster relief is also difficult to know.”
The Treasury Department, for instance, is still disbursing pandemic relief funds to states and localities, stimulus payments to eligible households, and advanced child tax credit payments, among others, says Bernard Yaros, an assistant director and economist at Moody’s Analytics. “This adds another element of uncertainty to forecasting the default date.”
Outlays for the Small Business Administration’s Paycheck Protection Program loan forgiveness, for example, are particularly varied. There’s no outlay from the government until a small business applies for forgiveness and the forgiveness is approved. Businesses typically have about 10 months after their covered period ends to file for forgiveness.
Additionally, if the Delta variant were to meaningfully slow the economic recovery, it would increase certain Treasury payments and reduce revenues, which would then accelerate the default date, Yaros told Fortune.
Yet even in normal times, forecasting the default date is always full of uncertainty, Yaros says. Each month, there are millions of withdrawals from—and deposits into—the Treasury’s account at the Federal Reserve where it maintains its cash balance, Yaros says.
“The Treasury doesn’t know with certainty exactly how much is going to come in each day, in terms of tax revenues, nor do they know exactly how much is going to go out each day in payments,” says Paul Van de Water, senior fellow with the Center on Budget and Policy Priorities.
While some expenses like Social Security are pretty predictable, others like Medicaid claims are more dynamic. There’s less predictability around when states are going to submit claims and for how much.
With all of this uncertainty, Zandi believes that Yellen is likely being conservative in her estimate of Oct. 18 as the drop-dead date. “That is understandable,” Zandi adds, “given the cataclysmic costs of lawmakers misjudging and not acting in time to increase or suspend the debt limit.”
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