Wednesday, 5 February 2014

The Next Financial Crisis Will Come Sooner Than Advertised – Debt Ceiling Blues

Posted at  05:46  |  in  Debt

The Next Financial Crisis Will Come Sooner Than Advertised – Debt Ceiling Blues
According to recent reports, the next financial catastrophe of the country may arise sooner than predicted. Treasury Secretary, Jack Lew sent a letter to the House Speaker John Boehner, warning him that the entire nation would most likely exhaust all the extraordinary measures that were so long being used to remain beneath the debt limit by late February, 2014. Although in a previous letter to Boehner, Lew had anticipated this projected deadline not before March, but now it has been scheduled to late February. While this new projections might be subject to variability, but the experts don’t foresee any reasonable scenario for which the extraordinary measures could last for an extended period of time, thereby helping the nation stay within the debt ceiling.

According to the deal that was reached in mid-October to put an end to the federal government shutdown, the lawmakers took the decision of extending the debt limit of the nation into the first week of February, 2014. It was a fact always known that the Treasury could take any kind of extraordinary steps to extend the deadline even farther. But in the last letter to Boehner, Lew made it clear that the tools and the measures weren’t being as potent as they’ve been during the previous debt limit crises. The reason behind this impotency of the tools is the restraints on borrowing capacity and partially due to the fiscal constraints that are unique to the month of February.

The Obama administration had also warned Congress saying that the government would most probably run out of their borrowing authority that is required for paying its bills by late February if the lawmakers didn’t take the decision of raising the debt limit. According to the letter, Jack Lew has respectfully urged Congress to offer stability and certainty to the US economy and the financial markets by taking some immediate actions towards raising the debt limit. Congress had passed a 2-year budget deal in the month of December to avoid some spending cuts that were planned for the next year and the deal would reduce the risk of another federal shutdown. But unfortunately, the legislation is simply doing nothing to avert the potential unprecedented US debt default that could possibly occur if Washington didn’t raise the borrowing cap.

This tightened deadline has recently created dilemma for Boehner. The GOP leaders have already said that they won’t simply vote to increase the debt limit without getting back something in return but what they want to get in return is unclear. On the other hand, the White House has refused to go for any negotiations over the raising of the debt limit. They emerged confident in its intransigence after Republicans folded before the previous debt ceiling deadline in late October. Lew has also mentioned in a letter that no Congress has ever failed to meet their responsibility and hence he respectfully urges Congress to restore stability to the economy by raising the debt ceiling and saving the nation from another financial catastrophe.

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Jimmy Simond is founder of he share his immense knowledge of finance in this blog. You can follow him on Google+.


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