Fall Marks the Debt Ceiling Being Reached

Measures will have to be made to deter serious consequences

When mid-October rolls around, the United States government will not be able to legally allow or issue debt, according to the latest letter from Treasury Secretary Jack Lew of Congressional leaders.

The time period is when the Treasury will exhaust its “extraordinary measures” that it has used to avoid going over the imposed limitations from Congress when it comes to the federal debt of $16.7 trillion set in the budget last May.

The limit on the federal borrowing is a specific holdover that stems from when Congress allowed approval of each new issuance of debt. As the financing has evolved into an overly and almost unreal complexity of rules and measures, the Congress decided to move toward an aggregate limit of debt. That measure allowed the Treasury Department more wiggle room when it came to deciding the timing and nature of the debt issuance that comes as it remained below the congressionally-mandated limit set to debt.

There is a sense of redundancy in all of the work, because Congress controls not only the spending and taxation, but can also control the debt level without a mandatory debt limit. In recent years, the existence of the debt ceiling has been an issue of global action, and congressional Republicans have now used the fear of raising it in order to gain concession on spending cuts by President Obama.

Justin Wolfers, an economist from the University of Michigan, argued that the showdowns were likely to start in 2011 as consumer and business confidence fell sharply. It was the motivating factor for the S&P downgrading of the United States’ credit rating, which is a barometer for the borrowers’ confidence that the U.S. Will meet its promised obligations to holders of debt.

The refusal to raise the ceiling would essentially mean the United States would be unable to pay what it already owes. So far, Washington has managed to avoid the problems that lead to defaults on obligations, however, the consequences could include higher interest rates and general confusion/panic in the markets.

Secretary Lew argued that the failing to raise the ceiling would almost certainly “cause irreparable harm to the American economy.”

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