The never ending saga of Debt, Deficit & Default

            …and the drama continues. Now the date to watch for is August 2^nd. That’s when $14.3 trillion debt limit of US government is going to be breached.

            Debt ceiling is a cap set by Congress on the amount of debt the federal government can legally borrow. The cap applies to debt owed to the public (i.e., anyone who buys U.S. bonds) plus debt owed to federal government trust funds such as those for Social Security and Medicare. The first limit was set in 1917 for $11.5 billion.

            Considering how serious the debt ceiling issue is and getting worse each passing day, President Obama sent out invitations to the leaders of both parties for last week’s meet. Invitation said: “a unique opportunity to do something big about the budget deficit.”

            Nice words…Unique! Big! But the thing is Congress has raised the debt limit 10 times in the last 10 years – from $5.95 trillion in 2000 at the end of the Clinton presidency to the present level of $14.29 trillion, so I don’t think there is anything unique or big about it. Time is in the favor of the US political leaders because considering all the uncertainties with the debt ceiling, US debt is still selling at below 3% for 10 years. I still believe that the common sense will prevail on Capitol Hill and the dooms day scenario of 'US default' is not going to materialize.

            Two senior research fellows of George Mason University’s Mercatus center, Veronique de Rugy and Jason Fitchner, came up with the steps that Treasury could take to meet its financial obligations and prevent a technical default until the end of the fiscal year on Sept. 30, and possibly longer:

• Based on Congressional Budget Office estimates, tax revenue of $2.2 trillion in fiscal 2011 Technical default can be easily averted by paying off the $214 billion of interest on the debt. Tax revenue is also enough to cover Social Security, Medicare and Medicaid outlays as well.
• Treasury secretary can repeat his ‘extraordinary actions’ of suspending investment in government pension funds and the Social Security Trust Fund, something that he is doing since the public debt hit the statutory limit in May.
• Treasury can also use cash on hand or sell assets, such as gold, foreign currency or assets acquired under the Troubled Asset Relief Program. Agreed, such sales won’t yield enough to cover all the bills, but the payments can be prioritized.

            So, to all the respected Congressmen-women & the President, the opportunity might not be ‘unique’ or ‘big’ but it doesn’t mean that its not important for it directly deals with the lives of an average American.

Reference:  
 

http://www.bloomberg.com/news/2011-07-07/debt-limit-shuffle-buys-time-for-something-big-caroline-baum.html#0_undefined,0_