U.S. Will Reach Debt Limit on December 31, Adds to Fiscal Cliff Uncertainty

U.S. Will Reach Debt Limit on December 31, Adds to Fiscal Cliff Uncertainty

Treasury Secretary Timothy Geithner informed Congress today that the U.S. Government will hit the debt limit on December 31 and will take “extraordinary measures” to fund the government’s obligations.  Those measures are estimated to provide $200 billion in “headroom” to keep the United States solvent for about two months.

In his letter, however, Geithner said that the impending fiscal cliff makes it impossible to determine exactly how long the $200 billion temporarily made available by those measures — like delaying payments into the federal retirement system — will last:  “Under normal circumstances, that amount of headroom would last approximately two months.  However, given the significant uncertainty that now exists with regard to unresolved tax and spending policies for 2013, it is not possible to predict the effective duration of these measures.” 

The debt limit — how much of debt the government is legally allowed to encumber — currently stands at $16.4 trillion.  Congress and the White House have been trying to negotiate a solution to the impending fiscal cliff of tax increases and spending cuts that will occur automatically next week.  The debt limit issue was added to the mix a few weeks ago and at one time the negotiations were about a comprehensive plan that dealt with taxes, spending, and the debt limit in one big package.   Those hopes have faded as the issues themselves take on added urgency.

Agreement is required among the President, the House and the Senate.   The President is currently on his way back to Washington and the Senate is scheduled to meet in legislative session tomorrow beginning at 10:00 am ET.  However, no meeting of the House is scheduled.  House Speaker John Boehner and others in the House Republican leadership issued a press release today saying the Senate must act first.  The Senate is scheduled to debate an unrelated measure — the Foreign Intelligence Surveillance Act (FISA) Amendments Reauthorization — but, of course, other legislation could be brought up at any time if at least 60 Senators agree.

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