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 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