What’s The “X-Date”? According to Yellen, We’ll Find Out on June 1st.

The phrase “X-Date” may remind readers of the TV drama X-Files or the superhero X-Men. It actually refers to the date when the U.S. Treasury goes broke.

Perhaps Special Agents Mulder and Scully could help Janet Yellen solve her financial problems. More likely, the Treasury will need help from Cyclops, Marvel Girl, Iceman, and the rest of the X-Men to save her from the X-Date.

The problem arises from the fact that issuing U.S. Treasury debt beyond a certain ceiling requires approval from the U.S. Congress. The amount of outstanding debt today is at the current debt ceiling. The Treasury is allowed to issue new debt to roll over maturing debt as long as the ceiling is not breached.

Since the U.S. is running large budget deficits, the Treasury has to increase the total amount of debt outstanding in order to pay the government’s bills for everything from F-35 fighter jets to food stamps. Treasury has already hit the debt ceiling but has been able to scrape by with some positive cash flow (due to tax payments around April 15) and some other revenue sources, including excise taxes and tariffs.

The Treasury also has a slush fund called the Exchange Stabilization Fund (created with the profits made in 1933-34 when FDR confiscated gold and raised the price from $20.67 per ounce to $35.00 per ounce; one of the great insider trades of all time).

Still, the Exchange Stabilization Fund has been used lately to prop up the FDIC insurance fund that has been depleted by the bail-out of Silicon Valley Bank. You get the picture.

The government can shuck and jive and scrape the bottom of the barrel, but the bottom line is there comes a time when the Treasury is actually broke. That’s the X-Date. And according to this article, the X-Date is June 1, 2023, just three weeks away.

The source for this date is Treasury Secretary Janet Yellen. Of course, Yellen cannot be completely trusted. She could just be trying to scare Republicans into raising the debt ceiling without getting spending cuts in return.

Yellen actually doesn’t know much about fiscal policy or a number of legitimate and previously used techniques to create additional spending power for Treasury without violating the debt ceiling. She’s really just a flunky for the White House, so she says what they tell her to say.

Still, there is an X-Date out there somewhere. Right now, the House of Representatives and the White House are playing a game of fiscal chicken to see who blinks first. Maybe we’ll find out the hard way when the bond market and the U.S. economy drive over a cliff.

One phone call from the Treasury to the Federal Reserve could reprice the Treasury’s gold from $42.22 per ounce (historic cost) to a market level of $2,000 per ounce. That would pull $550 billion of new spending power out of thin air without issuing any debt.

This was done by the Eisenhower administration in the 1950s under similar circumstances. Don’t expect that to happen because no one in power wants to recognize the role of gold as a monetary asset. Instead, expect this game of chicken to continue.

Investors can brace by buying gold and building up cash reserves. The stock market may be in for a rocky road.

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