Two years ago, Standard & Poor’s delivered the United States its first credit downgrade in history. The ratings agency made the decision shortly after Congress agreed to a new budget package, which failed to eliminate debt concerns, or prove that politicians could make a deal without causing a scene. Now, another political sideshow is preparing for a fall release, and it could be more disastrous than a low-budget movie featuring flying sharks.
The world’s largest economy started 2013 by hitting its record debt ceiling of $16.4 trillion. In the final days of 2012, former Treasury Secretary Tim Geithner sent a letter to Congress warning of the inevitable event, saying the department would take “extraordinary measures” to provide approximately $200 billion in headroom. Eventually, Congress agreed to suspend the debt ceiling for a brief period of time. The move raised the debt ceiling to nearly $16.7 trillion, but the suspension is over, and Washington is taking a page from the same script again.
With gridlock in Washington keeping the debt ceiling in place for now, current Treasury Secretary Jacob Lew notified Congress in May that the Treasury would take the same “extraordinary measures” as before in order to provide the government with an extra $260 billion in funds. The measures will allow the government to pay its obligations for a few months. However, it is estimated that the debt ceiling will need to be raised as soon as September — or as late as November.
If Congress does not raise the debt ceiling in time, it will likely cause financial shockwaves and unintended consequences around the world. In fact, some believe it could be worse than “Sharknado” — a movie where a superstorm drops thousands of sharks over land where they kill people.
Alan Krueger, outgoing White House Council of Economic Advisers, explains to Politico, “The deeper you go into the emergency measures, the more it puts the recovery at risk. The idea of breaching the debt limit is really unthinkable. I was thinking about the Syfy movie you probably saw, ‘Sharknado’. You have this tornado which brings sharks and they land on people’s heads. I think if we cross the debt limit, it would be worse for the financial sector.”
He also adds, “Our entire financial infrastructure depends on Treasuries. The idea that the government would be picking and choosing which bills to pay – just the idea of that being contemplated by some members of congress – is very unhealthy for the United States’ economy.”
While “Sharknado” may sound like a crazy story, the notion that America has a real debt ceiling is even more ridiculous. At this point, the national debt ceiling should really be called the national debt target. Congress seems to have no problem hitting the multi-trillion-dollar figure on a regular basis.
Last year, the debt target was raised by $1.2 trillion. Congress has placed “restrictions” on federal debt since the Second Liberty Bond Act of 1917, but has raised the debt target more than 70 times since.
Congress has voted to raise the bullseye 11 times since 2002 as seen in the table below from Congressional Research Service.
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