'D-Day' on Monday

On Monday, May 16, the United States will officially be unable to borrow any more money. That is the day that the US reaches its official debt ceiling of $14.294 trillion.

This doesn't mean there will be a government shutdown. The Treasury Department will be able to use some accounting tricks to keep the government going until August.

What it means is that a clock has started and the countdown begun on the game of debt chicken that will play out between Republicans and the president. What's at stake? The future solvency of the US government and the viability of the US economy.

Reuters:


There will be little immediate financial impact when the United States reaches its existing $14.294 trillion debt ceiling, as the Treasury Department says it can stave off a default until early August. Observers don't expect Congress to swing into action until the last possible minute.Bond markets have remained placid as traders calculate that despite the theatrics in Washington, the chances of default are extremely small.

"I don't think this is a big story yet," said Dan Ripp, an analyst with Bradley Woods, a securities firm in New York.

Budget experts say the debt limit provides an opportunity to address the country's long-term fiscal problems before it courts a Greek-style debt crisis.

"Nothing blows up next week, but the clock is ticking now. We need to get on top of this problem," said Alice Rivlin of the Brookings Institution.

Unlike nearly every other developed country, the United States can't increase its borrowing authority without legislative action.

This is a mixed blessing for Congress: The public is overwhelmingly opposed to a debt-limit increase, and the vote to raise the limit is always politically painful. But it gives lawmakers further leverage over federal spending.

"The beauty of the debt ceiling issue is it gets results," Senate Republican Leader Mitch McConnell said on Thursday.

Perhaps, but what kind of results? If lawmakers take the easy road and make symbolic or small cuts in federal spending, it won't do anything to head off the disaster staring us in the face. If the Democrats had their way, they'd raise taxes on the "rich" and gut defense, while ignoring the 800 lb gorilla in the room - entitlements.

But the GOP is taking the political risky avenue of going after sacred cows like Medicare and Social Security while eschewing any tax increases. This has allowed the president to demogogue the issue and accuse the GOP of being heartless monsters who want to impoverish seniors while giving the rich another tax break.

There are signs in the polls that the president's smears are working - support for Paul Ryan's budget plan has dropped like a stone. But doing the right thing is usually politically painful. It remains to be seen whether the GOP, under the leadership of Speaker John Boehner, can stick to their guns and get meaningful budget reform a little more than a year from the election.



On Monday, May 16, the United States will officially be unable to borrow any more money. That is the day that the US reaches its official debt ceiling of $14.294 trillion.

This doesn't mean there will be a government shutdown. The Treasury Department will be able to use some accounting tricks to keep the government going until August.

What it means is that a clock has started and the countdown begun on the game of debt chicken that will play out between Republicans and the president. What's at stake? The future solvency of the US government and the viability of the US economy.

Reuters:


There will be little immediate financial impact when the United States reaches its existing $14.294 trillion debt ceiling, as the Treasury Department says it can stave off a default until early August. Observers don't expect Congress to swing into action until the last possible minute.

Bond markets have remained placid as traders calculate that despite the theatrics in Washington, the chances of default are extremely small.

"I don't think this is a big story yet," said Dan Ripp, an analyst with Bradley Woods, a securities firm in New York.

Budget experts say the debt limit provides an opportunity to address the country's long-term fiscal problems before it courts a Greek-style debt crisis.

"Nothing blows up next week, but the clock is ticking now. We need to get on top of this problem," said Alice Rivlin of the Brookings Institution.

Unlike nearly every other developed country, the United States can't increase its borrowing authority without legislative action.

This is a mixed blessing for Congress: The public is overwhelmingly opposed to a debt-limit increase, and the vote to raise the limit is always politically painful. But it gives lawmakers further leverage over federal spending.

"The beauty of the debt ceiling issue is it gets results," Senate Republican Leader Mitch McConnell said on Thursday.

Perhaps, but what kind of results? If lawmakers take the easy road and make symbolic or small cuts in federal spending, it won't do anything to head off the disaster staring us in the face. If the Democrats had their way, they'd raise taxes on the "rich" and gut defense, while ignoring the 800 lb gorilla in the room - entitlements.

But the GOP is taking the political risky avenue of going after sacred cows like Medicare and Social Security while eschewing any tax increases. This has allowed the president to demogogue the issue and accuse the GOP of being heartless monsters who want to impoverish seniors while giving the rich another tax break.

There are signs in the polls that the president's smears are working - support for Paul Ryan's budget plan has dropped like a stone. But doing the right thing is usually politically painful. It remains to be seen whether the GOP, under the leadership of Speaker John Boehner, can stick to their guns and get meaningful budget reform a little more than a year from the election.



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