Geithner: Debt Ceiling Likely To Be Reached Before End Of The Year

The Secretary of the Treasury is telling Congress that the United States is likely to hit the debt ceiling established by the deal Congress reached last August before the end of 2012:

The U.S. economy appears to be gaining strength, but that won’t necessarily prevent another bitter showdown over raising the debt limit this year, according to Treasury Secretary Timothy Geithner.

“I think even with agreement and prospect on the payroll tax, we still do not expect that  the debt limit until quite late in the year, significantly after the end of the fiscal year but before the end of the calendar year,”

“I think even with agreement and prospect on the payroll tax, we still do not expect [to hit] the debt limit until quite late in the year, significantly after the end of the fiscal year, but before the end of the calendar year,” Geithner said in testimony before the Senate Budget Committee on Thursday.

The fiscal year ends on Sept. 30. But whether the debt limit, which is now $16.4 trillion, is reached before the Nov. 6 election – setting up a particularly nasty fight along party lines – or after depends on just how well the economy does this year.

It’s off to a good start. The unemployment rate fell much faster than expected over the last two months and is now down to 8.3 percent. The Conference Board’s leading indicators, released on Friday, gave further evidence of a recovery on firmer footing.

But economists remind that the same thing happened last year, and the year before.

“The recent improvement in the incoming economic data… has raised hopes that the US economy could shrug off the crisis in the euro-zone and finally enjoy a more vigorous self-sustaining recovery,” analysts at Capital Economics wrote on Thursday. “But the U.S. economy has already been at this point twice before since the recession began, in early 2010 and then early 2011, only for growth to fall back sharply.”

Economic forecasters tick off now-familiar election-year headwinds: the European sovereign debt crisis, oil prices, the threat of another natural disaster disrupting global supply chains, and congressional gridlock.

The nightmare scenario, of course, is the one I mentioned last week; that Congress would be required to vote to raise the debt ceiling before the 2012 elections. Given how much of a political train wreck the battle was last July and August, one can only assume that it would be even worse immediately before an election where the Presidency, the House, and 1/3 of the Senate are at stake. The possibility of reaching an acceptable deal under those circumstances would be pretty slim. From Geithner’s testimony, though, it appears that the current estimate is that the limit would be reached late enough in the year that the Treasury Department would be able to avoid hitting the ceiling with the same accounting moves it made last year, thus pushing the drop-dead date until sometime after the election.

That’s slightly better, of course, but still not something to look forward to. In that case, we’ll have a scenario where either a lame duck Congress or the Congress that convenes in January 2013 will be required to act quickly on a matter that is incredibly politically unpopular. Between that and the issue of what to do about the Bush Tax Cuts, it’s likely to be a very messy December 2012 and January 2013.

FILED UNDER: Campaign 2012, Congress, Deficit and Debt, Economics and Business, Quick Takes, US Politics
Doug Mataconis
About Doug Mataconis
Doug holds a B.A. in Political Science from Rutgers University and J.D. from George Mason University School of Law. He joined the staff of OTB in May 2010 and contributed a staggering 16,483 posts before his retirement in January 2020.

Comments

  1. Gustopher says:

    The nightmare scenario, of course, is the one I mentioned last week; that Congress would be required to vote to raise the debt ceiling before the 2012 elections.

    Hardly seems like a nightmare scenario to me. Seems like either the Republicans would piss off their base, or behave so badly that they would piss off the independents.

    And, having the election be about whether we want pragmatists or ideologues in congress would be nice.

  2. Brummagem Joe says:

    From Geithner’s testimony, though, it appears that the current estimate is that the limit would be reached late enough in the year that the Treasury Department would be able to avoid hitting the ceiling with the same accounting moves it made last year, thus pushing the drop-dead date until sometime after the election.

    Precisely. There’s no way it’s going to be hit before the election and then after it (win or lose) when hitting it is imminent Obama has a perfect rationale for letting ALL the Bush cuts expire.

  3. @Brummagem Joe:

    Except Obama has already said he won’t do that. The only world in which that will happen is the one that exists in the fantasy land created by the viewers of MSNBC and Current TV

  4. superdestroyer says:

    President Obama is going to be able to double the national debt during his eight year term while being able to blame GW Bush for all of it.

    David Axelrod is showing while he is a genius. The Democrats get to maintain sky high spending while being able to blame the Republicans for all of it.

  5. Brummagem Joe says:

    @Doug Mataconis:

    Except Obama has already said he won’t do that. The only world in which that will happen is the one that exists in the fantasy land created by the viewers of MSNBC and Current TV

    Doug, I didn’t say he would but just that he had a perfect rationale for letting them all expire. Instead of going off into one of your rants against MSNBC viewers, you’d be better employed in considering the dynamics of the expiry of the Bush cuts. Whether all of them stay or go isn’t entirely in Obama’s hands is it? The extent to which he pushes for the retention of the middle class part of them and the expiry of those on the wealthiest will depend on various factors like his own re-election and the general state of the economy. If he’s not re-elected there’s no incentive either way. If he is he’ll probably push for the retention of those for the middle class but not accede to Republican blackmail on those for the wealthy. Thus they’ll all expire and he’ll blame Republicans. How hard he pushes will depend on the overall state of the economy. If it’s in full recovery mode he’ll probably be quite happy to let them expire and have a scapegoat to blame for their expiry.

  6. Brummagem Joe says:

    @superdestroyer:

    President Obama is going to be able to double the national debt during his eight year term while being able to blame GW Bush for all of it.

    Well this would mean his record was the same as GWB and not as good as Reagan’s who tripled the national debt. And since 90% of the current deficit is essentially the product of Bush’s tax cuts; committments undertaken by the Bush admin like Part D; wars started by the Bush admin; and the worst recession since the 30’s which Bush bequeathed; the allocation of blame isn’t exactly misplaced is it?

  7. An Interested Party says:

    Instead of going off into one of your rants against MSNBC viewers…

    You’re asking for too much, Joe…