EconFact 10/31: Just when you thought (Debt Ceiling Facts) Were Over….

Raise the roof!
Raise the roof!

This week, 27 Republican Senators voted to disapprove their votes to raise the debt ceiling. It’s certainly an usual response to the tradition of fulfilling the US obligations but then again, this time round, the debt ceiling crisis ended in an unusual way.

Just to recap, on Oct 1, Treasury Secretary Jack Lew sent Congress a letterstating that the Treasury will exhaust its ability to pay the nation’s bills if Congress does not raise the debt ceiling. the debt ceiling is a theoretical limit on the number of outstanding debt via bonds the Treasury can issue.

Historically, the debt ceiling has been raised to a number: For example, in the last debt ceiling crisis on 2011, Congress approved to raise the debt ceiling$2.1-2.4 trillion dollars. Easy enough to understand right?

However, this time round, the debt ceiling is raised to a date: Feb 7, 2014. There is no stated limit to how much debt the Treasury can issue to fulfill obligations.

This has several implications and questions. The first easily being that this gives a new set of tools the Treasury can use to pay debts when Feb.7 2014 hits and thus entities that own US debt will not freak out as much next time round (not that they truly freaked out last time). The second is that this measure may eliminate debt ceiling issues as we know it. There is a provision in new bill called ‘The McConnell Rule’ (named for Minority Leader Mitch McConnell) let’s the president raise the debt limit instead of Congress and that raise is subject to Congress’ approval. This may eliminate future default fears and allow US to join all other governments in the world that have no stated debt limit.

 

But I have some questions that economists I have talked to and news articles don’t answer for me. Why doesn’t the Treasury issue enough debt now to stave off any default fears for the rest of President Obama’s term then? What other extraordinary tricks does the Treasury have because of this provision? How many policymakers in Washington understand that this is really, really important?

I think the last question may be the scariest one of all…MUAHAHAHAHAHAHA.

Also some SPOOOOOKKKY links: 

 

^v^ Happy Halloweeen ^v^ 

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