In about 2 months, (sometime in August) we run out of accounting tricks and reach the point where something has to give. We won't have enough revenue coming in to pay out the social security checks, pay our soldiers, pay the health care bills and the interest on the debt. There's only 3 possible outcomes IMHO:
1. A small extension, say 60-90 days
2. They reach a longer term agreement for raising the debt ceiling around 2 trillion or so
3. No agreement - default.
I would assume nobody wants option #3, I doubt if any politician wants to risk the voter's wrath if this happened. The consequences are said to be very severe; nobody knows for sure, but it could approach catastrophe with world wide repercussions. I'm not seeing this as much of a possibility.
The 2nd option would be the ideal outcome, more likely than a default but not by much. Why? Cuz we have a definite gridlock in DC, the GOP will not raise taxes and the Dems wil not cut spending without a tax increase. We can argue the pros and cons of raising taxes until we're all blue in the face, but right or wrong every republican knows the TPers will get him/her in the primaries if he/she agrees to raising taxes. To do so would be tantamount to political suicide.
The democrats on the other hand need a tax hike to offset whatever spending cuts they agree to even if it's not a 1 to 1 ratio. Cuz if they don't do that then they're essentially admitting their Keynesian demand side spending is/was the wrong approach and that the GOP is/was right. A democrat who supports significant spending cuts without accompanying tax hikes would be in political purgatory with his own party.
So --- to me the most likely outcome are some short term deals that raise the debt limit by a few hundred billion to a half trillion or so and then go through the same ordeal in 2-3 months. Not sure who wins or loses, probably depends on the details; who gets hurt by the cuts. Tricky stuff, cuz if the pain is not spread around surely one side will use it to bash the other in the upcoming election cycle.
But here's the downside to this option, it makes clear to the rest of the world and the bond markets that the US Gov't is dysfunctional and is incapable of getting it's financial house in order. There could be a very real chance of a downgrade in our credit rating before the end of the year, which means higher interest payments on our debt. Plus, the uncertainty that right now is depressing our economy would continue or perhaps worsen. It is my personal opinion that until our gov'ts at every level agree to a workable plan to resolve the debt/deficits, there will be no economic recovery. There are other things that also need to be done, but until our own citizens feel like we've got a plan to get out of this mess, nothing is going to work.
1. A small extension, say 60-90 days
2. They reach a longer term agreement for raising the debt ceiling around 2 trillion or so
3. No agreement - default.
I would assume nobody wants option #3, I doubt if any politician wants to risk the voter's wrath if this happened. The consequences are said to be very severe; nobody knows for sure, but it could approach catastrophe with world wide repercussions. I'm not seeing this as much of a possibility.
The 2nd option would be the ideal outcome, more likely than a default but not by much. Why? Cuz we have a definite gridlock in DC, the GOP will not raise taxes and the Dems wil not cut spending without a tax increase. We can argue the pros and cons of raising taxes until we're all blue in the face, but right or wrong every republican knows the TPers will get him/her in the primaries if he/she agrees to raising taxes. To do so would be tantamount to political suicide.
The democrats on the other hand need a tax hike to offset whatever spending cuts they agree to even if it's not a 1 to 1 ratio. Cuz if they don't do that then they're essentially admitting their Keynesian demand side spending is/was the wrong approach and that the GOP is/was right. A democrat who supports significant spending cuts without accompanying tax hikes would be in political purgatory with his own party.
So --- to me the most likely outcome are some short term deals that raise the debt limit by a few hundred billion to a half trillion or so and then go through the same ordeal in 2-3 months. Not sure who wins or loses, probably depends on the details; who gets hurt by the cuts. Tricky stuff, cuz if the pain is not spread around surely one side will use it to bash the other in the upcoming election cycle.
But here's the downside to this option, it makes clear to the rest of the world and the bond markets that the US Gov't is dysfunctional and is incapable of getting it's financial house in order. There could be a very real chance of a downgrade in our credit rating before the end of the year, which means higher interest payments on our debt. Plus, the uncertainty that right now is depressing our economy would continue or perhaps worsen. It is my personal opinion that until our gov'ts at every level agree to a workable plan to resolve the debt/deficits, there will be no economic recovery. There are other things that also need to be done, but until our own citizens feel like we've got a plan to get out of this mess, nothing is going to work.
Last edited:
