U.S. on Track to Hit Debt Limit by Year End

November 5, 2012

Although emergency measures will allow the United States to keep borrowing into the first quarter of 2013, at the current rate, it will hit the legal borrowing limit by the end of 2012, says the Wall Street Journal.

  • The current debt ceiling gives Congress a few months to act before the government loses flexibility in financing on its obligatory programs: Social Security, military salaries, public schools, etc.
  • Last year raised the debt limit by $2.4 trillion to $16.39 trillion.
  • The public sector has been borrowing heavily to compensate the differences between federal expenses and revenue.
  • The budget deficit in fiscal 2012 topped $1 trillion for the fourth consecutive year.

Last year's lengthy battle over the growing deficit in Congress has undermined confidence. Consequently:

  • Standard & Poor's stripped the U.S. government of its debt rating.
  • Government had to pay additional interest costs.

To prevent further economic calamities:

  • Negotiations to raise the debt cap are expected to take place after November elections.
  • Large tax increases and spending cuts will be addressed again.
  • House Speaker John Boehner, for example, wants any increase in debt ceiling to be contingent on spending cuts and savings.

The Treasury Borrowing Advisory Committee reminds that a timely and orderly resolution surrounding this uncertainty would improve the economic outlook.

  • The group expects to keep note and bond auction sizes stable in the coming months.
  • Also, it will continue to develop floating-rate notes, but such securities will not be sold for at least a year.

Source: Jeffrey Sparshott, "U.S. on Track to Hit Debt Limit by Year End," Wall Street Journal, October 31, 2012.

 

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