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Could the deal to end shutdown and debt crisis happen on Halloween?

October 9, 2013 by Scott Bomboy


As politicians in Washington appear to be stuck in neutral about the shutdown and debt ceiling crises, there’s growing speculation that Halloween will be the ultimate deadline for a final deal.

capitolDeutsche Bank Chief U.S. Economist Joe LaVorgna is among those who believe the deal will come between October 17, the deadline tossed out by Treasury Secretary Jack Lew, and October 31, the day before the government faces a massive financial payment.

LaVorgna’s reasoning is in a guidance note published on the Business Insider website.

“We believe the Treasury can fund the government until the end of the month, up to October 31. The real issue is whether financial markets will panic between October 17 and October 31, thereby forcing the Administration and Congress to reach a deal,” LaVorgna said. “Hence, our best guess is that the government will reopen between October 17 and October 31.”

In late September, the Congressional Budget Office published a schedule of when the Treasury Department has to make large payments in late October.

On October 31, Treasury is scheduled to make a $6 billion interest payment from its own securities, and on November 1, the CBO says a $67 billion payment is due out for Social Security, Medicare, military pay, and other benefits. (Another group, the Bipartisan Policy Council, puts the number at $58 billion.)

The CBO warned then that the Treasury Department could face a cash shortage as soon as October 22, and it might have to pick and choose which payments it makes.

However, government officials have said “prioritization” of bills isn’t possible, due to the vastness of the Treasury Department’s billing structure, and it wouldn’t address the default concerns of global markets.

"Prioritization is default by another name," Director of the National Economic Council Gene Sperling said on Monday. "Prioritization is like telling a relative who's got near—who's got perfect credit, you know, it's OK if you pay your mortgage and don't pay your student loan and your car loan, your credit loan."

LaVorgna also didn’t believe prioritization would happen.

Steve Bell, a the director of Bipartisan Policy Council's economic-policy project, was quoted in the National Journal last month as pointing to October 31 as a critical deadline.

"I think it's exceedingly unlikely they can make it past Halloween," said Bell. "The Lord indeed has a great sense of humor."

Alec Phillips, an analyst at Goldman Sachs, told The Hill on Tuesday that November 1 was the day that Treasury would face a crisis, based on current estimates.

“The one thing we know for sure is that by Nov. 1, they will be out of money,” said Phillips.

Phillips also said that growing talk about a Halloween deadline didn’t bode well for a deal before October 17.

“If everybody is discussing when the actual deadline is, it’s not necessarily a good sign for them reaching an agreement by the 17,” said Phillips.

An open question remains about how the crisis would end. Will the government shutdown end first? Or will there be a bigger deal that concludes the shutdown with a debt ceiling agreement?

As of today, there appeared to be more of a consensus that the shutdown and debt ceiling deals would be close together, if not at the same time.

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