Bipartisan Policy Center Outlines Dangers of Not Increasing Debt Ceiling

According to a recently released report from the Bipartisan Policy Center, the US Treasury may exhaust its borrowing authority by as early as February 15th.

The nation's debt ceiling currently sits at $16.394 trillion. That ceiling was reached on December 31st, and the nation's total debt load currently sits at a little over $16.43 trillion.

Treasury Secretary Timothy Geithner announced on December 31st that "extraordinary measures" would be used to allow the government to continue to operate as per usual. These "extraordinary measures", which includes temporarily not reinvesting the Federal Employees' Retirement System G-Fund and Exchange Stabilization Fund, provides the US government with roughly $200 billion of emergency borrowing authority.

According to the Bipartisan Policy Center, this additional $200 billion in borrowing authority will last until between February 15th and March 1st. Somewhere between those two days, the Treasury will exhaust its borrowing authority and no longer have the money to pay all of its bills "in full and on time".

The Bipartisan Policy Center calls the day that the Treasury fully exhausts its borrowing authority as the "X Date". US Congress needs to raise the nation's debt ceiling by this "X Date", or else there will likely be severe consequences for the nation, and possibly the global economy as a whole.

What happens if the debt ceiling has NOT been raised by the "X Date"? According to the BPC ("Bipartisan Policy Center"), the Treasury would have two choices:

1) Prioritize payments

2) Make each day's payments as soon as the cash becomes available (this would result in payments being delayed)

There is no precedent here, as Congress has always increased the nation's debt ceiling before the country has reached its "X Date". In short, there is no telling what the Treasury would do if the debt ceiling wasn't raised by the "X Date", and there is no telling what the immediate impacts would be on the nation, as this has never happened before.

The two sides will almost certainly come together to raise the nation's debt ceiling, but given the level of acrimony that exists between the Democrats and Republicans right now, anything could happen.

It was thought that the "fiscal cliff" deal would include a debt ceiling increase, but this didn't end up happening, setting the stage for another bitter battle in just a few months.

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According to the BPC, the nation will need to increase the debt ceiling by $1.1 trillion to get through 2013 and $2.1 trillion to get through 2014.

Source: Bipartisanpolicy.org - Debt Limit Analysis

Filed under: The Economic Meltdown