Sheila McKinney

Wednesday, May 18, 2011

THE DEBT CEILING PROBLEM

The United States hit its debt ceiling on Monday and there
is no deal on the horizon to raise it ahead of the August
official deadline.

Treasury Secretary Timothy Geithner is done issuing dire
warnings (for now). He was at the Harvard Club on Tuesday
when he said "the debt limit is about the past". His shift
in tone reflects a belief that within the Treasury that
Geither has pulled all the emergency levers he can to give
Congress until early August to raise the debt limit without
putting the NATION in DEFAULT.

The Treasury has begun borrowing from federal pension plans
and curtailing certain efforts to assist states to keep
making interest payments on outstanding federal debt - -
effort Mr. Geithner says will be effective only through
August 2nd.

Similar measures have been used in the past and the debt
ceiling was always raised in time to avoid default or
event the appearance of default. Treasury interest
rates have not risen significantly in recent weeks. This
indicates that the market believes a deal will be made.

If one isn't, it could damage global financial markets and
drive up the cost of borrowing for the government and for
private citizens.

Republican congressional leaders like House Speaker Boehner
are demanding cuts of at least $2 trillion in return for an
increase of $2 trillion in the debt ceiling without raising
taxes.

Democrats say that they would never accept such a measure.