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Raising the Debt Ceiling

Global economy cheers Senate deal on debt

David Brancaccio Oct 16, 2013
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UPDATED 10/16/13 1:20PM EST: Senate leaders have agreed to a deal to reopen the federal government and raise the debt ceiling through February. The Senate is expected to vote on the measure later Wednesday.

The ratings agency Fitch warned overnight Wednesday it may strip the United States of its AAA sovereign credit rating. Negotiations about the federal budget, the health care reform law, and raising the limit on federal borrowing are back in the Senate after the House’s plan collapsed on Tuesday. 

Though Thursday’s deadline to raise the debt ceiling less than 24 hours away, global markets are relatively calm. Why?

“Tomorrow is the day that [the U.S. Treasury] runs up against its borrowing ceiling, but it still has around $30 billion of cash to spend,” explains Paul Dales, senior U.S. economist at Capital Economics in London. “That $30 billion will probably last the Treasury one or two weeks, so tomorrow is not the crunch day.”

The end of the month, however, could bring default, says Dales. “That’s when the real nightmare might begin.”

On October 31, Dale says the U.S. needs to pay $6 billion in interest on its debt, and have another $57 billion ready on November 1 to pay out entitlements like Social Security and Medicare.

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