Remember the debate over the approaching US debt ceiling during the summer of 2011? Well, it’s coming around again. Today, as part of its quarterly update on its plans for funding the operations of Uncle Sam, the US Treasury department said:
Treasury continues to expect the debt limit to be reached near the end of 2012. However, Treasury has the authority to take certain extraordinary measures to give Congress more time to act to ensure we are able to meet the legal obligations of the United States of America. We continue to expect that these extraordinary measures would provide sufficient “headroom” under the debt limit to allow the government to continue to meet its obligations until early in 2013.
Over the summer of 2011, the approach of the debt limit—which was accompanied by S&P’s downgrade of the US debt rating—had a really rough impact on both financial markets and the US economy. The “solution” that got us through that crisis was the establishment of what has eventually become the “fiscal cliff,” the spending cuts and tax hikes that are due to take effect at the end of 2012, right about when the current debt ceiling is reached. Uncertainty about when/how/if US policy makers deal with the cliff is keeping US business spending quite soft at the moment.