In a long-awaited update from Janet Yellen, shortly after the close, the Treasury Secretary sent a letter to Congress in which she said that as a result of the recent slowdown in tax receipts (extensively discussed here), the Treasury could run out of emergency debt-limit measures (i.e., hit the infamous X-Date) as soon as June 1 absent a debt-ceiling deal, a revision to her previous Jan 13 letter in which she said that it was “unlikely that cash and extraordinary measures would be exhausted before early June.” In other words, Congress has exactly one month to get a deal to raise the debt limit – which of course won’t happen without the market first plunging enough to prompt the extremely polarized chamber into action.

Here is the key part from the letter:

In my January 13 letter, I noted that it was unlikely that cash and extraordinary measures would be exhausted before early June. After reviewing recent federal tax receipts, our best estimate is that we will be unable to continue to satisfy all of the government’s obligations by early June, and potentially as early as June 1, if Congress does not raise or suspend the debt limit before that time. This estimate is based on currently available data, as federal receipts and outlays are inherently variable, and the actual date that Treasury exhausts extraordinary measures could be a number of weeks later than these estimates.

As a reminder, we have been tracking daily cumulative tax receipts which had fallen as much as 35% below last year’s levels…

… prompting banks to warn that a debt ceiling crunch could come far sooner than the expected X-date some time in late July/early August.

To be sure, Yellen admits that the X-date remains fluid, a function of the daily changes in tax receipts and outlays, and it is “impossible to predict with certainty the exact date when Treasury will be unable to pay the government’s bills” and Yellen will provide further updates to Congress in the coming weeks “as more information becomes available” but given the current projections, Yellen warns that “it is imperative that Congress act as soon as possible to increase or suspend the debt limit in a way that provides longer-term certainty that the government will continue to make its payments.”

Additionally, Yellen said that to avoid breaching the debt limit, the Treasury is suspending the issuance of State and Local Government Series (SLGS) Treasury securities: “SLGS are special-purpose Treasury securities issued to states and municipalities to help them comply with certain tax rules. When Treasury issues SLGS, they count against the debt limit.”

Such a move will deprive “state and local governments of an important tool to manage their finances”, which for a country that spends like a drunken sailor, is a move in the right direction.

Finally, as usual, Yellen ends by pleading with Congress to get a debt ceiling deal done as soon as possible:

We have learned from past debt limit impasses that waiting until the last minute to suspend or increase the debt limit can cause serious harm to business and consumer confidence, raise short-term borrowing costs for taxpayers, and negatively impact the credit rating of the United States. If Congress fails to increase the debt limit, it would cause severe hardship to American families, harm our global leadership position, and raise questions about our ability to defend our national security interests.

Needless to say, with the debt ceiling becoming the most controversial political topic and one which neither side is willing to compromise over, it is likely that nothing short of a market quake – similar to August 2011 – will be needed to prompt Congress into action, especially since there are just 12 legislative days between now and June 1.