Raising the Debt Ceiling

Ok, debt ceiling is dealt with: What do I need to know now?

David Gura Oct 16, 2013
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Raising the Debt Ceiling

Ok, debt ceiling is dealt with: What do I need to know now?

David Gura Oct 16, 2013
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A deal is struck to fund the government until mid-January and lift the limit on U.S. borrowing until early February. Here are three things you need to know.

Even with a solution, we’ll still pay a price. Steve Bell, who is the senior director of the Bipartisan Policy Center, says taxpayers will face higher interest rates which he estimates will cost them “somewhere between $1 and $1.5 billion a year over the next ten years.”

Why is that?

Danny Blanchflower, who teaches economics at Dartmouth College, says our credibility has taken a hit, and that will affect our government’s ability to borrow at lower rates. 

“We are choosing to take ourselves to the brink,” Blanchflower says. “It’s totally appalling, and economists across the spectrum have said this is madness.”

It will take a while to tally the cost of the shutdown, and that cost will be significant. IHS Global Insight, an economic consulting firm, estimates that every week the government is shutdown costs the U.S. $1.6 billion.

Nigel Gault, The Parthenon Group’s co-chief economist, expects the U.S. GDP will drop “on the order of a few tenths of a percent” when all is said and done.

That may not sound like a huge hit, but when you look at how fast – or how slowly – the U.S. economy has been growing since the recession, it isn’t an insignificant amount.

Mark your calendars for Jan. 15. Under the Budget Control Act of 2011, Jan. 15 is when the next round of sequestration cuts – across-the-board automatic spending cuts – are scheduled to take effect.  Under the deal to end the shutdown and postpone the threat of default, that’s also the date on which funding for the U.S. government would run out.

“Many people in Washington would like to see the sequester replaced with something else – more sensible budget cutting,” Gault says. Members of a new committee, comprised of House and Senate members, will work to find an alternative to those cuts. “The problem is that, to do anything different from the sequester, we’re going to be stuck again.”

This deal is fundamentally a short-term deal, and the presents its own problems.  Earlier today, Peter Hooper, the chief economist at Deutsche Bank, is looking for a silver lining:

“I think there is at least a sigh of relief that it isn’t a six-week extension,” he says. “We’re back in the soup before the end of the year and the middle of the holidays.”

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