Categorized | Economy

Congress Has Six Weeks to Avoid Debt Ceiling Crisis

On Monday, Treasury Secretary Jack Lew gave Congress until the middle of October to raise the U.S. debt ceiling, or risk a possible debt default. This means that the rate of currently authorized spending will drive the U.S. debt above the $16.7 trillion debt limit.

What makes this a bit confusing is that it will occur two weeks after Congress must pass the FY 2014 budget, due September 30. Many Republicans said they will only pass a budget that takes away funding (defunds) Obamacare.

What Will Probably Happen

Congress won’t risk a repeat of the 2011 debt ceiling crisis. This was devastating to the economy, and no one won. Instead, it will pass a short-term continuing resolution to raise the debt ceiling by October 15, just like it has throughout history. House Speaker John Boehner can pass this debt ceiling override, even without 100% of Republicans agreeing.

However, this is only a temporary fix. The FY 2014 budget needs to be passed, or many government agencies will run out of money as of the end of September (the end of the Federal fiscal year). This is a bigger issue. Republicans will insist that nothing will be passed unless Obamacare is defunded. Therefore, the budget probably won’t be passed.

This isn’t as dire as it sounds. The FY 2013 budget has never been approved, either. Instead, Congress enacted a continuing spending resolution in October 2012 and March 2013.

That’s probably what will happen with the FY 2014 budget. This means that spending will continue at current levels, continuing the sequestration spending cuts.

How It Affects You

You will hear a lot of reports in the news that there could be another crisis brewing. This could disrupt the stock market, and your investments. Gold prices will probably rise, like they did in 2011.

However, in all likelihood, it will pass over by November. Your best bet is to focus on leading economic indicators, to see how the real economy is performing. For example, yesterday’s Durable Goods Orders report showed there could be a temporary soft spot.

Related Articles

  • Who Owns the U.S. Debt?
  • Watch the Video: What Is the National Debt?
  • The History of the U.S. Debt Clock

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Source: About.com
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