Thursday, March 29, 2012

Gridlock is coming

The debt ceiling of $16.394 trillion will be hit on September 14, 2012.  It will probably be impossible to raise it until the new Congress comes back in late January 2013.

The Treasury has all sort of tricks up their sleeves but last time they were able to only last about 2.5 months before running out of oxygen.  So the US government could actually run completely out of money by December 1.  It is unknown what would happen then as it would be illegal for them to borrow any more unless the debt ceiling is raised.

Meanwhile, attempts to actually pass a budget are crashing and burning.  The Bowles-Simpson plan was rejected 382-38, the Obama budget was rejected 414-0, and the Congressional Black Caucus plan was rejected 314-107.  The Ryan plan passed 228-191, but it will be killed in the Senate.

I expect some kind of crisis or stock market crash or recession beginning in September.

UPDATE:  This will be worse than gridlock. The Republicans hate the president so much they are willing to let the economy crash just to spite him.  

"Nobody wants much to think about it yet, but it's well understood by everyone in Washington and on Wall Street, that a potentially massive fiscal problem is looming for the economy next year.
The issue is divided into three parts:
  • Sometime in late 2012 or early 2013, Congress will have to approve another debt ceiling hike.
  • At the same time, all of the Bush tax cuts are set to expire -- not just the tax cuts for the rich.
  • Thanks to the last debt ceiling deal, some big time spending cuts are due to go into effect starting in 2013. In theory, these could be reversed by Congress, but in the context of everything else it will be challenging. 

I'm actually rooting for a crisis this fall.  While that sounds harsh, it would fix the long-term problems I am much more worried about.  The tax increases and spending cuts would go far to balance the budget.

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