This article was last updated on December 27
As I was writing this article I re-read my original pieces on the 2011 debt ceiling debate/deal and got a major sense of deja-vu. After 18 months we are back in the same place with a dysfunctional Congress, who barely passed legislation to avert the fiscal cliff, trying to reach a new deal to keep the nation from the edge of financial ruin. But it’s my job to write about stories that affect our personal finances so here I go with details and early rumblings on the 2013 debt ceiling debate.
In fact by the end of 2012, America has already passed its legal debt limit or “ceiling” (currently $16.4 trillion) which forced the Treasury to use “extraordinary measures” to ensure that the government can continue to meet its payment obligations. But these measures only provided a two month extension before the credit lines will truly run dry. Some experts estimate that we will reach the extended debt ceiling limit even sooner – sometime in mid February – meaning the government won’t be able to borrow further to fund its spending.
With federal government spending ($450 billion a month) over 50% more than the revenues ($275 billion a month) it brings in, the government will have to default on a number of its funding obligations. This includes interest payments on the debt, Social Security, Medicare, Medicaid, defense, education, food stamps and other discretionary spending. It could also mean another continuing resolution that would shut down the government and freeze federal worker wages through 2013. There could also be significant delays in processing tax refund payments as these will be prioritized well below other expenditures. Having to cut 50% of national spending means that everyone will be affected and all Americans will feel the impact of these cuts.
Here’s what some of the major players are saying about the debt ceiling and the impact if Congress does not approve a raise
“If extraordinary measures were allowed to expire without an increase in borrowing authority, Treasury would be left to fund the government solely with the cash we have on hand on any given day,” Treasury Secretary Tim Geithner said in a letter to congressional leaders.
“The consequences of failing to increase the debt ceiling are real, but so too are the consequences of allowing our spending problem to go unresolved,” said Republican House Speaker John Boehner who said that the American people do not support raising the debt ceiling without reducing government spending at the same time.
“[Republicans] will not collect a ransom in exchange for not crashing the American economy,” President Obama vowed. “The financial well-being of the American people is not leverage to be used. The full faith and credit of the United States of America is not a bargaining chip….I want to be clear about this: The debt ceiling is not a question of authorizing more spending,” he said. “Raising the debt ceiling does not authorize more spending. It simply allows the country to pay for spending that Congress has already committed to.” (NY times)
Obama’s prediction (via CNN) on failing to raise the debt ceiling: “Social Security checks and veterans benefits will be delayed. We might not be able to pay our troops or honor our contracts with small business owners. Food inspectors, air traffic controllers, specialists who track down loose nuclear materials wouldn’t get their pay checks.”
The Federal Reserve chairman, Ben S. Bernanke, also called on Congress to increase the debt ceiling to cover bills that it has already incurred. “The right way to deal with this problem is for Congress to do what it is supposed to do and what it needs to do.”
Now Congress could easily avert this manufactured crisis by raising the debt limit as has been done in the past. But Republicans, who control the House in Congress, are vehemently against raising the debt ceiling without some serious spending cuts to lower the growing national debt. With the President saying publicly that he is against debating the debt ceiling increase and placing the full faith of the US government’s credit at risk, we can expect another round of political theatrics over the next few weeks.