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Debt Ceiling Smash-Up Will Hit Early

Written by Gary North on February 27, 2012

The battle over the debt ceiling last year was prime-time news last summer. Congress finally consented to a huge increase. This increase was expected to last until well into 2013. It won’t.

The next President’s inauguration will take place in the middle of another debate over what gets cut (nothing) and who pays higher taxes (no one) and how high the next ceiling must be (way, way higher).

Analysts from the Bipartisan Policy Center projected that the United States will hit its $16.4 trillion debt ceiling between late November 2012 and early January 2013 due to lower-than-expected corporate tax revenues and the recent extension of the payroll tax holiday.

A number of other factors, such as the ongoing financial crises in Europe, volatile gas prices and how quickly the U.S. economy continues to grow could push the debt-ceiling deadline forward or backwards, according to the center.

If it is pushed bavkward, the debte will hit before the election. That would be bad news fior Obama.

The current debt ceiling is $15.4 trillion.

President Barack Obama’s fiscal 2013 budget also foreshadows an earlier-than-expected deadline. As of Sept. 30, the debt level is expected to hit $16.3339 trillion, running close to the statutory $16.394 trillion limit, according to the budget.

A grueling, weeks-long battle in Congress last summer ended with an agreement to slash $2.1 trillion from the federal budget in exchange for raising the debt limit by the same amount. The standoff pushed the country to the edge of default and triggered the first-ever downgrade of the nation’s credit rating.

If the United States maxes out its credit limit before the end of this year, that could set up another messy and acrimonious battle during the lame-duck session. Lawmakers already face a dilemma over expiring Bush-era tax rates and a potential fight over preventing the $1.2 trillion in automatic budget cuts that were borne out of the supercommittee’s failure last November.

If it happens in late October, that would get debt onto the front burner of the election. But it probably won’t.

The Bipartisan Policy Center said it believed that the Treasury Department could punt the debt-limit deadline until February 2013 if the so-called extraordinary measures were again used.

The debt problem is now a permanent political issue. There is no way to avoid it. Someone’s ox will get gored.

When interest rates at last turn up, the interest component of the debt will begin to swallow up the rest of the budget. The day of reckoning will arrive.

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