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The Debt Ceiling 2013: How We Got Here, What Could Happen

By , Money Morning -

A new twist to investing and financial planning is averting travesties that the government itself created; first it was the fiscal cliff, now it's the debt ceiling 2013.

The debt ceiling is a part of the way government has to go about doing its business.

However, both sides of Washington have come to use the full faith and credit of the United States of America as a bargaining chip - and the consequences are huge.

But it wasn't always like this.

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Debt Ceiling Bill Intensifies Budget Pressure on Congress

By , Contributing Writer, Money Morning -

The debt-ceiling showdown took center stage on Capitol Hill today (Wednesday) as a crucial vote on a Republican bill gave the Treasury the green light to borrow a fresh stash of cash until May 19.

The Republican-controlled House passed the bill by a 284-144 margin.

It now moves on to the Senate, where it is expected to pass quickly without any changes.

Senate Democrats are expected to back the plan even though they have been hesitant to support any short-term debt ceiling fix, maintaining it creates additional uncertainty for businesses and families.

"I'm very glad that (House Republicans) are going to send us a clean debt-ceiling bill," said Senate Majority Leader Harry Reid, D-NV.

The measure would go from the Senate to U.S. President Barack Obama, who has repeatedly said he will not wrangle over the debt ceiling and will sign the bill when it reaches his desk.

Pleased with the results, the White House added a "but," saying it would have liked a longer- term solution.

While the legislation looked extremely likely to make it to the Oval Office, there is still a chance it could get tangled up in Congress, given a controversial provision in the bill.

The legislation includes a divisive rider aimed at coercing Senate Democrats to ink a long-term budget deal. The "no budget- no pay" provision would withhold pay for members of Congress until a sustainable deal is agreed upon.

"It's not a slam dunk. But the main thing is that the Republicans will cave on the debt ceiling. So we're now just arguing over the details," Greg Valliere, chief political strategist for Potomac Research Group, told CNN Money ahead of the voting.

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U.S. Debt Ceiling: Government "Borrows" Pension Funds to Avoid Default

By , Contributing Writer, Money Morning -

The U.S. Treasury, in order to avoid default, has resorted to an eyebrow-raising move: it has borrowed from the federal employee pension fund as the country nears its debt ceiling.

The U.S. government stopped investing in the federal employee pension fund Tuesday "to avoid breaching the statutory debt limit," according to a letter Treasury Secretary Timothy Geithner sent to Congress.

Geithner said that the move will free up some $156 billion in borrowing authority, while policy leaders in Washington wrangle over raising the $16.4 trillion debt limit.

Geithner promised the fund would be "made whole once the debt limit is increased," and maintains that federal employees and retirees would not be affected by the action.

But an IOU from the federal government isn't very settling for those relying on the fund for retirement.

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The Debt Ceiling Debate: Will the Democrats' Gambit Lead to a Victory in the 2012 Election?

By , Money Morning -

We talked yesterday (Thursday) about the debt ceiling debate, and how the GOP is making the most of its opportunity to affect the economy in the run up to the 2012 election.

Well, the Democrats are doing the same thing - except whereas the Republicans are looking to make long-term fixes at the expense of short-term growth, Democrats are doing the opposite.

I'll show you what I mean.

As I said in my previous piece on GOP economic strategy, I'm a firm believer in Public Choice Theory.

And in this battle the Democrats would like to see rapid growth between now and November 2012. More than anything, they want to see unemployment come down sharply.

They don't care so much about whether inflation is ticking up a bit, or whether an over-large budget deficit may cause trouble in the future. If they get elected in November 2012, they can try to sort out problems then - particularly if they can recapture the House of Representatives.



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The 2012 Election and the Truth Behind the Debt Ceiling Debate

By , Money Morning -

At this point, there can't be anyone left who truly believes that the debt ceiling debate taking place in Washington is really about what's good for America.

The truth is it's about the 2012 election - and the party that wins the debt ceiling debate will be the party that comes out on top next year.

It's politics - pure and simple.

Republicans and Democrats have their own respective agendas heading into the 2012 election. And with 16 months to go, there's just enough time for actions taken now to work their way through the system and swing the economy in one direction or the other.

Now, I'm not a believer in conspiracy theories, but I am a firm believer in Public Choice Theory. That means I believe we can make clear statements about what economic conditions each party would like to see 16 months from now - considering their own selfish political points of view.

The Democrats would like to see rapid growth, with unemployment coming down sharply. They don't care so much about whether inflation is ticking up a bit, or whether an over-large budget deficit may cause trouble in the future. If they get elected in November 2012 they figure they will sort out any problems after the fact - particularly if they can recapture the House.

Conversely, the Republicans would like growth to be sluggish, with unemployment stubbornly high. They also would like to make the painful decisions that bring long-term growth now, so that they can benefit from the growth and not suffer the political cost of the pain if they capture the Presidency and ideally both Houses of Congress in November 2012.

Both parties, of course, have strong beliefs about what policies work better, about what policies are better for the interest groups that support them, and about what policies are best suited to their ideology. But at this stage of the electoral cycle, they're pragmatists.

Here's how the election cycle breaks down:

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