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The Congressional Budget Office issued a report on November 29, 2012 with news that the amount of US debt is once again approaching its statutory limit.  Earlier in the week, the debt amount stood at $16.279 trillion.  That put US debt subject to the limit $115 billion below the ceiling that was set last January at $16.394 trillion.  The current limit was predetermined in the resolution of the August 2011 debt ceiling debacle.  Here’s a graph, courtesy of the US Treasury Department, illustrating the rising debt amount over the last three months.  The horizontal orange line represents the current ceiling.

The current Debt Limit was increased from $15.194 trillion to $16.394 trillion effective January 30, 2012.

The CBO forecasts that the debt limit will be reached by the end of December.  The rate of increase for 2012, so far, confirms that 2013 will begin with the US at its debt limit, unless Congress takes action to raise it before year end.  If the lame ducks do nothing before the 112th session comes to a close, the exact date when the debt ceiling is reached won’t have any immediate importance.  As the CBO explains in its report, “the Treasury has a well-established toolbox of so-called extraordinary measures that will make continued borrowing possible for a limited time if the current debt limit is reached.”

When the debt ceiling was reached in 2011, Treasury Secretary Timothy Geithner sent a notification letter to leaders in Congress on May 16 to inform them that the borrowing authority of the United States would be exhausted by August 2.  It’s most likely that the US would have the same length of time after reaching the statutory debt limit around January 2 so that a resolution won’t become urgent until mid-March.  The current deficit amount has decreased by 10% since a year and a half ago and borrowing may be slower. If Congress doesn't act in January or February, concern about the debt ceiling will intrude into the annual income tax season.  In advance of the April 15 deadline, the US Treasury would be receiving payments for taxes owed and it would also be processing refunds.  It's possible that a delayed resolution to raising the debt ceiling could affect the timeliness of refunds owed to taxpayers.

The CBO ends its report on a rather ominous note.

“In the event that the debt limit is not increased before extraordinary measures are exhausted, the Treasury will not be authorized to issue additional debt that increases the amount outstanding. (It will be able to issue additional debt only in amounts equal to maturing debt.) That restriction would severely strain the Treasury’s ability to manage its cash and could lead to delays of payments for government activities and possibly a default on the government’s debt obligations. Which of the government’s various financial obligations would be paid and which would not would be determined by the Administration.”
Reaching the statutory debt limit at this time isn’t a surprise.  It was planned so that the ceiling wouldn't dominate the election campaign.  It might be giving our representatives in Washington, DC more credit than they deserve to say they deliberately timed the debt limit to coincide with other fiscal changes coming at the end of the year.  

Raising the debt limit is an issue that stands alone.  It isn't a bargaining chip.  It isn't optional.  It must be done expeditiously with a minimum of drama.  Since it comes at a time when there’s talk of deals to be made, there’s risk that raising the debt ceiling will be linked to bargaining about revenue and spending.  If the Republicans, who have a majority in the House, withhold approval of a raise in the ceiling, it would be the surest sign that they do not intend to negotiate anything else in good faith.  It’s the only card they have to play.  They played it before and it would be unwise to make the same mistake again.  It didn't work out well the last time.

We have lowered our long-term sovereign credit rating on the United  States of America to 'AA+' from 'AAA' and affirmed the 'A-1+' short-term  rating.

The political brinksmanship of recent months highlights what we see as America’s governance and policymaking becoming less stable, less effective, and less predictable than what we previously believed. The statutory debt ceiling and the threat of default have become political bargaining chips in the debate over fiscal policy.

Despite this year's wide-ranging debate, in our view, the differences between political parties have proven to be extraordinarily difficult to bridge, and, as we see it, the resulting agreement fell well short of the comprehensive fiscal consolidation program that some proponents had envisaged until quite recently. Republicans and Democrats have only been able to agree to relatively modest savings on discretionary spending while delegating to the Select Committee decisions on more comprehensive measures . . .

. . . We have changed our assumption on this because the majority of Republicans in Congress continue to resist any measure that would raise revenues, a position we believe Congress reinforced by passing the [Budget Control] act.  

---Standard and Poor's
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Comment Preferences

  •  Tip Jar (4+ / 0-)
    Recommended by:
    hannah, Overseas, HoundDog, simple serf

    "Those who deny freedom to others, deserve it not for themselves." - Abraham Lincoln

    by leftreborn on Fri Nov 30, 2012 at 03:13:17 AM PST

  •  I don't recognize debt limits (2+ / 0-)
    Recommended by:
    leftreborn, OooSillyMe

    And neither do financiers, they just charge higher interest.

    There is no limit, ceiling, or cliff.

    Start some WPA jobs programs and quit dragging your feet DC!

    "Til you're so fucking crazy you can't follow their rules" John Lennon - Working Class Hero

    by Horace Boothroyd III on Fri Nov 30, 2012 at 03:26:59 AM PST

    •  O Horace, the only thing that worries me is the (1+ / 0-)
      Recommended by:
      Horace Boothroyd III

      friggin' Republicans who seem hellbent on fucking everything up for their rotten agenda.  And what irritates me is the media that doesn't call out the shit they pull as if it's all just politics as usual.  They just ratchet up anxiety to keep their viewers' attention because they have advertising time to sell.  I hope my piece doesn't make me seem like a fiscal-cliffian.  My intent is to throw a wet blanket over the hype and I could be wrong but I think people would be calmer if they understood why they're going to hear a lot about this in the weeks to come.  I was going to start the first paragraph with, "Turn off your television."  But I didn't go that route.

      "Those who deny freedom to others, deserve it not for themselves." - Abraham Lincoln

      by leftreborn on Fri Nov 30, 2012 at 03:51:36 AM PST

      [ Parent ]

  •  Statutory refers to a statute and a statute (1+ / 0-)
    Recommended by:
    lotlizard

    is nothing more than a law passed by Congress. Statues are figments of the imagination -- something people make up for the purpose of telling themselves or someone else what to do.
    The Congress is setting artificial limits to how many dollars can be disbursed in the interest of warfare and welfare for the purpose of pretending that what the members have been hired it manage is out of their hands.
    Why would they do that? Because it is a tactic that enables them to punish the electorate they are supposed to serve, and come away with clean hands.
    Why does the Congress want to punish the electorate? Because universal suffrage has put Congressional autonomy and authority in jeopardy. The principle of sovereign immunity, which historically shielded them from being accountable to general electorate for the general welfare has been eroding for four decades and depriving the citizenry of ready access to money is their last best hope for retaining control.
    That the perception of threat is not a partisan matter is revealed by the fact that it is Democrats who point the finger at the banksters and the lobbyists and the courts when, in fact, both the power to legislate and the power to manage the currency lies squarely with them.
    The President is negotiating with hostage takers. Why is he doing that? Because we the people have not taken enough of them out of action.
    In this context, WE ARE THE TAKERS. Willard was right. We took him out and he and his billions were unable to make the majority vote right. Nor, if Clint Eastwood is to be believed, did we "make" his day.

    We organize governments to provide benefits and prevent abuse.

    by hannah on Fri Nov 30, 2012 at 04:17:25 AM PST

  •  Simple question. (1+ / 0-)
    Recommended by:
    lotlizard

    Why does the Treasury disburse dollars to bankers, via the Federal Reserve, and then borrow those dollars back, giving the banks a cut?

    We organize governments to provide benefits and prevent abuse.

    by hannah on Fri Nov 30, 2012 at 04:23:31 AM PST

    •  No. (0+ / 0-)

      The Treasury sells bonds to investors.  The Treasury Department conducts auctions and the bidder offering the lowest interest rate gets the bonds.  http://www.treasurydirect.gov/...  This is how the Treasury borrows money to fund our national devt, and how investors lend money to the United States government.  Treasury bonds, notes, and bills (the difference is the length of time until they're redeemed) are bought and sold on the open market.  An exception are special classes of bonds held by a different government agency--the Social Security trust fund, for example.  

      To control interest rates and the volume of money in circulation, the Federal Reserve may buy Treasury bonds on the open market, thus "printing" the money they pay for them and putting more money into circulation.  Or the Fed may sell part of their inventory of bonds on the open market, thereby taking money out of circulation.

      •  Look at the interest rates (1+ / 0-)
        Recommended by:
        leftreborn

        2-year notes for 0.25% per year interest.  10-year notes for 1-5/8% annual interest.  This is below the rate of inflation.  Investors are PAYING the U.S. government to hold their money.  There is no safer place in the world to put money.  Anytime anyone claims that the U.S. debt is too high or that inflation will come charging at us, tell them to look at the rates.  These rates are set by auction with the world's smartest investors bidding.

      •  The Treasury could simply create money itself (0+ / 0-)

        … rather than borrowing it from, and thus having to pay interest to, anyone. (Selling a bond is of course equivalent to borrowing from the bond holder.)

        As recently as 1971, the U.S. was issuing United States Notes.

        Public Debt of the United States

        As of June 2011, the U.S. Treasury calculates that $230 million in United States notes are in circulation, and excludes this amount from the statutory debt limit of the United States.

        Do I understand this correctly? That using this method, theoretically the Treasury could create any amount of money (for example, to keep the government operating if the "fiscal cliff speed bump" is not resolved), without running afoul of the statutory debt limit that House Republicans are refusing to increase?

        The Dutch kids' chorus Kinderen voor Kinderen wishes all the world's children freedom from hunger, ignorance, and war.

        by lotlizard on Fri Nov 30, 2012 at 07:54:54 AM PST

        [ Parent ]

        •  No the Treasury wouldn't resolve the problem like (0+ / 0-)

          that.  But first I want to emphasize that the Republicans aren't refusing to increase the debt limit now.  This is something that may be on the horizon but there's no need for anyone to worry prematurely and possibly needlessly.

          Think of the Treasury and it's unofficial 'partner,' the Federal Reserve,  as using a traditional two-column ledger system of debits and credits.  Although it has become popular to say that the government is "printing money" this is generally not the case.  Bonds that are issued as instruments to securitize the debt are purchased by investors.   When the bonds mature, 100% of the principal amount is repaid to the purchaser (or other holder.)  The bond position flattens itself out to zero and it ceases to exist.  If money was printed instead, and distributed by the government to pay its bills, it would circulate through the economy and the ledger would never balance out to zero.  When that happens, it's possible and even likely that the value of the currency would be adversely affected.

          I'm simplifying the modern monetary system to explain something without going into a lot of detail.  It's almost inevitable that someone will appear now to challenge my explanation but it isn't meant to portray everything that happens in our financial system. I'm just trying to help you understand.

          "Those who deny freedom to others, deserve it not for themselves." - Abraham Lincoln

          by leftreborn on Fri Nov 30, 2012 at 08:58:23 AM PST

          [ Parent ]

          •  O.K., that makes sense. On the other hand, though, (0+ / 0-)

            … since I was little the dollar's value seems to have shrunk by a factor of 9 or 10.

            So the currency seems to be adversely affected anyway.

            If money was printed instead, and distributed by the government to pay its bills, it would circulate through the economy and the ledger would never balance out to zero. When that happens, it's possible and even likely that the value of the currency would be adversely affected.
            If maturing debt is never actually retired but instead, month after month and year after year, continually rolled over "and then some" (= net, more debt is taken on) — then the ledger never really balances out to zero anyway?

            Is there something I'm not understanding if I say that both methods are fiat currency, but in one case the government owes someone interest, and in the other it doesn't?

            Thanks for your patience in explaining, BTW.

            The Dutch kids' chorus Kinderen voor Kinderen wishes all the world's children freedom from hunger, ignorance, and war.

            by lotlizard on Fri Nov 30, 2012 at 09:43:49 AM PST

            [ Parent ]

            •  There's a difference (1+ / 0-)
              Recommended by:
              lotlizard

              When the government issues debt it offers Treasury bonds to investors in a transaction.  Treasury is selling and the investor is buying.  The investor exchanges his cash for a bond that is as good as cash.  It's an equal exchange. No money is created.  The investor's money is transferred to the government temporarily until the government spends it and reintroduces it into circulation.  When the bond matures, the government must repay the principal amount to the investor in a closing transaction which discontinues the life of the bond.  The investor and the government are back where they started and still no money was created.
              It's true the investor may decide to purchase a new series and begin the entire process once again.  Each time he does that, there will be an opening and a closing transaction.   Each bond investment will balance to zero and if the redeemed amount is reinvested the list of entries in the ledger just gets longer.  It's not correct to say they don't balance to zero because there may be a succession of investments.  The investor and the government shuffle the money back and forth and at the end of each round trip the balance is zero.

              Everything said so far applies to principal only.  I'm not going to get into interest payments. What I've done is reduce what happens on a macro level to an illustrative individual.  With interest, there still isn't any creation of money.  What's really happening with interest, and with principal too, is circulation, not creation.

              If the Treasury just printed money because law prevents it from borrowing, when the government uses the money to pay its bills it's a one-way unilateral provision.  Once it's done, there's nothing more to settle. Money that didn't exist anywhere is created and introduced into the system.  If enough is added into the economy without an offsetting subtraction the imbalance would create an effect of its own such as inflation or devaluation.  

              It's true that historically there has been gradual inflation that becomes noticeable over time.  Whether it's caused by monetary policy is an ongoing argument that will never be settled.  Even the Federal Reserve acknowledges that the monetary policy it conducts can contribute to inflation.  As with the topics above, this topic has two sides too.  Inflation is paired with deflation. We don't think of it much, but it could be said that the real estate market in the US has been in a period of deflation since 2006.  Deflation is considered to be more destructive that inflation.  It reduces wealth rapidly and once it begins it can be practically impossible to control.  Some gloom and doomers fear that austerity measures pushed by Republicans will begin a deflationary spiral that could impoverish the entire middle class for generations.

              Price increases that you notice aren't the same thing as inflation.  For example, the price of gas at the pump is affected by a half dozen factors that reflect the reality of a commodity traded globally.  There is supply but rising demand in the emerging economies.  Production is getting more costly because inferior resources like tar sands are being used to take the place of better resources that have been depleted.  The cost of refining tar sands into gasoline isn't profitable unless the price at the pump rises to $6 / gal.

              If you disagree with what I've said, all I ask is courtesy and politeness.  I don't mind people who have differing opinions but sometimes people are rude when there's no call for it.

              "Those who deny freedom to others, deserve it not for themselves." - Abraham Lincoln

              by leftreborn on Fri Nov 30, 2012 at 10:52:50 AM PST

              [ Parent ]

              •  Agree 100% re courtesy, I'm quite old school there (1+ / 0-)
                Recommended by:
                leftreborn
                If you disagree with what I've said, all I ask is courtesy and politeness. I don't mind people who have differing opinions but sometimes people are rude when there's no call for it.
                My least favorite feature of political websites is the way many people just can't seem to discuss things without descending into personal accusation, insult, and ridicule.

                The Dutch kids' chorus Kinderen voor Kinderen wishes all the world's children freedom from hunger, ignorance, and war.

                by lotlizard on Fri Nov 30, 2012 at 11:28:21 AM PST

                [ Parent ]

  •  Eliminate the Debt Limit (0+ / 0-)

    The Debt ceiling was established by an act of Congress and can be eliminated by an act of Congress.  It serves no functional purpose.  Spending is governed by the budget Congress passes, and revenues are governed by the tax rates Congress sets.

    We need Congress critters with the backbone to end the political football.

    •  I don't believe there's any genuine fiscal concern (0+ / 0-)

      for the deficit or the accumulated debt by either party.  For one thing, there's no reason for any such concern.

      The ceiling seems to have no purpose and it's an unnecessary redundant approval by the Congress that appropriated funds without collecting revenue to match.  As a check and balance it's completely dysfunctional.  Withholding approval of a higher ceiling would cause bigger problems than the debt itself.  It seems to have evolved into a dangerous weapon that the Republicans are willing to use to blackmail the Democrats.

      "Those who deny freedom to others, deserve it not for themselves." - Abraham Lincoln

      by leftreborn on Fri Nov 30, 2012 at 07:53:09 AM PST

      [ Parent ]

  •  I agree its on Congress and Redundant! (0+ / 0-)

    And more specifically...

    Per the Constitution, All Spending Bills MUST originate in the House.

    So really when you think about it, the US is reaching the Debt limit because of PAST actions in the House. If they had not Approved and Appropriated the spending funds for the US Govt at the current levels we would not be at the Debt limit.

    To say it is all on President Obama is one of the "Rights" Big Lies that the MSM repeats over and over again.

    As you said --and I agree whole heartily -- the debt limit is really a redundant mechanism that in essence is the House re-setting its own spending limits to match past Appropriations.

    Sigh...

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