Monday, April 11, 2011

Debt ceiling brawl threatens economy, consumers

Washington is gearing up for a battle over how many trillions the federal government can borrow to pay its bills, and it's shaping up to be an even bigger brawl than the one just resolved over funding the government for the next six months.

While investors viewed last week's budget brinksmanship as a minor event, they are beginning to grow concerned that many lawmakers and ordinary Americans, fail to grasp the implications of even suggesting the United States would default on its debt obligations.

What is a political football to Congress could end up flattening the economy and hurting consumers by lowering the nation's pristine credit rating and sending interest rates sharply higher.

The Treasury is warning it will reach its $14.3 billion limit on borrowing, known as the debt ceiling, in early May. Instead of a straight up-or-down vote on raising the cap, Republicans are threatening to attach policy measures on issues such as abortion funding and environmental regulation. Such "riders" were the main sticking point's in last week's budget showdown.

Anything that threatens to derail or delay the process of raising the debt ceiling is a red flag for markets. The longer it takes and the deeper the divide in Washington, the more markets will worry that the United States, the world's largest debtor nation, will default on its debt obligations with economy-rattling consequences.

On Saturday, House Speaker John Boehner told reporters that President Barack Obama had asked him for a "clean bill" on raising the debt ceiling.

"Well, guess what, Mr. President, not a chance you're going to get a clean bill," said Boehner. "And I can just tell you this. There will not be an increase in the debt limit without something really, really big attached to it."
Read the rest here.

1 comment:

The Anti-Gnostic said...

Anything that threatens to derail or delay the process of raising the debt ceiling is a red flag for markets. The longer it takes and the deeper the divide in Washington, the more markets will worry that the United States, the world's largest debtor nation, will default on its debt obligations with economy-rattling consequences.

If the government is borrowing money to fund its daily operations, then the question is not whether it will default but when.