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POLITICAL ECONOMY
Debt ceiling crisis looms at year end
by Gillian White, Medill News Service
Washington (UPI) Nov 9, 2012


disclaimer: image is for illustration purposes only

While the United States has been preoccupied with electing a new president and finding ways to reduce the deficit, an issue that experts see as a more critical event has started inching closer as the country once again nears its debt limit.

The United States is on course to hit its debt ceiling, which stands at $16.4 trillion, at the close of 2012, an Oct. 31 statement from the U.S. Treasury Department said.

This will occur around the same time Congress begins deliberating on issues of national deficit reduction. The country will likely once again resort to "extraordinary measures" in order to continue meeting debt obligations through early 2013.

Experts say even if the Treasury takes the necessary steps to prevent a breach of the debt limit, it will be a very short-term solution.

"There's less money available for extreme measures than there was last year. It will buy us less time," said Steve Bell, director of the Economic Policy Project at the Bipartisan Policy Center.

The possibility of defaulting on U.S. obligations is a much more dire scenario than going over the fiscal cliff, said Patrick Lester director of federal fiscal policy at OMB Watch, a government watchdog group in Washington.

"Sequestration is nothing like the debt ceiling," said Lester. "If we had gone past the ceiling, you are really messing with the faith and credit of the U.S. Markets have every reason to freak out if we don't pay our bills."

The last time the country neared its debt limit, Congress became embroiled in conflict that threatened to shut down the government and leave the United States to default on its debt for the first time. The solution, the Budget Control Act of 2011, averted defaults but also put in place legislation that created the fiscal cliff and another round of congressional brinksmanship.

While Senate Majority Leader Harry Reid, D-Nev., and Speaker of the House John Boehner, R-Ohio, have both stated that they hope to avoid the dramatics of the last debt ceiling debate, a painless negotiation is unlikely, Lester said.

"If you read between the lines what they basically said is nothing is different today than it was six months ago," he said.

The issue of the debt ceiling will likely be pushed into 2013 as the lame duck Congress scrambles to avoid the fiscal cliff and set up a framework for deficit reduction for the 113th Congress. A means of dealing with the debt in the long term will likely be tackled alongside deficit reduction, with the issue really heating up during phase two of budget negotiations, to Lester said.

"This is just such a hodgepodge of issues that have been prolonged for so long by so many congresses all coming to a head in about 20 days," said Bell.

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