What's the 'X Date' for the US Debt Ceiling? How It's Calculated | EXPLAINED

President Joe Biden recently said that Democratic and Republican negotiators were on the verge of resolving a debt ceiling standoff, as the deadline for a potentially catastrophic US default was pushed back to June 5. “It’s very close and I’m optimistic,” Biden told reporters at the White House. “I’m hopeful we’ll know by tonight whether we’re going to be able to have a deal.”

Although there was no indication of an imminent public announcement, it was the strongest sign yet that the drama in Washington might end, allowing the government to borrow and avoid a default that would likely trigger a recession and send shockwaves through the global economy.

Earlier, Treasury Secretary Janet Yellen said the dreaded X-date, when the government runs out of money unless it can borrow, will now be June 5, not June 1. Yellen, however, warned that the deadline extension does not change the urgency.

When is the X Date?

Despite the ongoing concerns surrounding the possibility of the US government’s funds running out, determining the exact date of a potential default, commonly referred to as the “X-date,” remains uncertain. The calculation of this date involves closely monitoring significant fluctuations in cash inflows and outflows from the Treasury, as well as considering the timing and magnitude of impending large payments, among other factors, as per a report by Associated Press.

As the deadline for the White House and congressional leaders to reach a deal on raising the debt limit approaches, knowing the precise drop-dead date becomes essential. However, even discussions about the X-date have become entangled in political disputes, adding to the existing friction surrounding the issue of national debt.

What is It?

The “X-date” refers to the point at which the government’s available funds are no longer sufficient to cover all of its financial obligations. This occurs when the government has exhausted the “extraordinary measures” it has been utilizing since January to extend its available funds.

Treasury Secretary Janet Yellen has estimated that if no agreement is reached to raise the legal borrowing limit by June 5, the United States could potentially default on its obligations. Various external entities, including the Congressional Budget Office, Moody’s Analytics, and the private Bipartisan Policy Center, independently analyze public data on government cash flows and changes in debt to pinpoint the X-date. Their estimates generally align closely with the Treasury’s projections, typically differing by just a few days.

The term “X-date” was coined in 2011 by Shai Akabas from the Bipartisan Policy Center, along with future Federal Reserve Chair Jerome Powell. Initially, it was defined as the day after which the federal government would be unable to meet all of its obligations, indicating that a default would occur the following day if policymakers did not take action. However, Akabas acknowledged that this definition proved difficult for people to comprehend, leading to a revision that describes the X-date as the day when the government does not meet all of its obligations.

How is it Calculated?

The calculation of the X-date involves a meticulous analysis of financial data and forecasting by government agencies. Bureaucrats rely on sources such as the Daily Treasury Statement, which provides a detailed account of the government’s financial resources and tracks the movement of money.

The Office of Fiscal Projections within the Treasury, in collaboration with career staff from the Offices of Tax Analysis, Economic Policy, and Debt Management, is responsible for generating a forecast of when the government’s funds will be depleted.

Similar to how individuals track their upcoming bills, the government maintains knowledge of its forthcoming obligations. These obligations extend beyond servicing existing debts. For example, based on an analysis of the Daily Treasury Statements conducted by the Bipartisan Policy Center (BPC), on June 1, the Treasury will need to make payments amounting to $47 billion for Medicare, $12 billion for military and civil retirement benefits, and $12 billion for veterans benefits. The following day, it will need to disburse $27 billion for Social Security and Medicaid payments. These are just a few examples of the various financial commitments the government needs to fulfill in its calculations for the X-date.

Associated Press contributed to this report