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The term “X-date” may sound like it has something to do with a talent show or a superhero movie, but the reality is far more sobering. Learn more about it.
With so much financial jargon floating around these days, it’s easy to become confused about what it all means. One of the terms that has been in the news lately is the X-date, which has nothing to do with Simon Cowell’s hit show, X-Factor. If you’re an investor or just someone who wants to stay informed, it’s important to understand what the X-date is all about and what it means for you.
What is the X-date?
The X-date is the date that the Treasury Department is projected to run out of money to pay its bills. This happens when the government reaches its debt ceiling and can no longer borrow money to keep up with the payments.
The Treasury Department has been using creative accounting measures to try to extend its cash on hand, but eventually, it will run out. Goldman Sachs analysts had previously forecasted the X-date to be between June 8 and 9. Treasury Secretary Janet Yellen said X-date would be June 5.
Why did we approach the X-date?
The first debt limit was set by Congress in 1917. Similar in function to a credit limit for a credit card, the debt limit ensures that the federal government operates within its means and does not spend beyond its allotted resources.
The government has hit the debt ceiling 78 times, and since 2009 the U.S. debt has tripled to $32.17 trillion dollars. It has surpassed the country’s GDP ($26.5T Q1 2023) for the past seven years.
In December 2021, legislators increased the debt ceiling by $2.5 trillion to $31.4 trillion. However, on Jan. 19, 2023, the U.S. hit the debt ceiling. The Treasury was able to take “extraordinary measures” to prevent the United States from defaulting on its obligations, pushing the X-date out to the first week of June 2023.
What were these extraordinary measures?
Congress has authorized the Treasury to take necessary measures in case of a deadlock on the debt limit. Starting in January, the Treasury declared a “debt issuance suspension period” to borrow more funds without violating the debt ceiling.
The Treasury also can suspend new investments in retirement funds for postal workers and civil servants.
It also planned on issuing $170 billion in T-bills right before the X-date in case Congress was unable to raise the debt ceiling. On May 30, the Treasury’s cash balance hit a six-year low of $37.4 billion, down from $140 billion in mid-May.
X-date suspended temporarily
Fortunately, on June 1, a week before the anticipated X-date, Congress suspended the debt limit until Jan. 1, 2025.
This means that the United States government can now continue borrowing money to fund its programs without worrying about hitting the debt ceiling until the stated date.
Treasury expected to borrow $1 trillion
Despite narrowly avoiding a default, the Treasury Department was still low on cash. So for the first time since 2007, the Treasury auctioned $15 billion worth of one-day cash management bills.
The one-day bill was issued on June 5, with a 5.145% investment rate. It matured on June 6. The Treasury received $61.6 billion in bids. In addition, the Treasury Department announced on June 7 that its goal is to increase its cash account to $425 billion by the end of June.
Experts predict that this amount will not be enough to cover its anticipated expenses. Wall Street predicts that it could exceed $1 trillion by Q3, starting with the Treasury-bill auctions worth over $170 billion.
What it means for investors
Investors don’t need to worry about the potential fallout of a default until 2025, but should expect another set of negotiations that will go down to the wire.
Investors can protect themselves from the impact of a possible default by diversifying their portfolio. This means investing in a range of assets such as stocks, bonds, and commodities, rather than putting all of their money in one type of investment. Diversification can help you to spread risk and reduce the impact of any potential losses.
Another way investors can prepare for future X-dates is by staying informed about the latest economic and political developments. This means keeping up to date with news articles and expert analysis, as well as monitoring the performance of their investments on a regular basis.
The potential X-date was a sobering reminder of the importance of political stability and fiscal responsibility. While the debt limit crisis has been postponed for a couple of years, it’s important for investors to be prepared and take practical steps to protect themselves. Diversifying your portfolio and keeping on top of future debt limit issues are strategies that can help investors protect themselves. Ultimately, the key is to stay informed, stay calm, and stay focused on your long-term investment goals.
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