The Treasury Department announced today that the nation would reach the legal borrowing limit established by Congress in August 2011 before the end of this year:
U.S. Treasury Secretary Timothy Geithner said Wednesday that the nation’s statutory debt limit will be reached on December 31 and the Treasury Department will take “certain extraordinary measures” to postpone the date.
In a letter to Senate Majority Leader Harry Reid (D-Nev.), Geithner said that the measures would add about two months — or an additional $200 billion — to the limit under normal circumstances. However, given the tax and spending uncertainty due to the so-called fiscal cliff, Geithner said, he cannot predict how much time the measures will actually allow.
The debt ceiling is the legal limit for Congress to borrow money. The 2011 summer debt ceiling crisis caused Standard and Poor’s to downgrade the credit rating of the United States and contributed to economic turmoil before Congress and President Barack Obama reached a deal to raise the limit.
The letter from Geithner to Reid comes as the fiscal cliff is set to happen at the end of the year, with no apparent deal close in Congress. The cliff will bring austerity — a combination of spending cuts and tax increases — which many expect to slow economic growth in the coming year.
Now, it’s possible that going over the Fiscal Cliff may actually buy us some time on the debt ceiling as the spending cuts and tax increases kick in, but it’s not likely to be a very long amount of time. At some point before Easter, Congress is going to have to deal with the same issue it deal with in the Summer of 2011. Given how badly things went then, I’m not at all optimistic.
