U.S. Debt Limit Will Run Out Faster Than Expected

U.S. Debt Limit Will Run Out Faster Than Expected

Written by: PaxForex analytics dept - Friday, 27 June 2014 0 comments

According to estimates of the U.S. Treasury, on Oct. 17 in the treasury will be only $ 30 billion to be used up to the end of October, and if the upper limit of the debt will not be raised, there is no money for November’s payments.

Stocks are getting cheaper, gold and bonds - on the contrary. Many believe that at the last minute the situation will be solved, as usual, but it may be the case when the “wolves” actually already came.

The upper limit of the debt ceiling will be reached earlier than expected, announced Wednesday the Secretary of the U.S. Treasury Jacob Lew. By 17 October at the government's disposal will be only $ 30 billion, without the right to take additional funds. As the Congressional Budget Office has estimated, this amount will be spent during October 22-31.

It is worse than the August Treasury’s calculations on which it appeared that by mid-October still will be at least $ 50 billion.

“We estimate that, at that point, Treasury would have only approximately $30 billion to meet our country’s commitments,” Lew said in a letter today to U.S. House Speaker John Boehner. “If we do not have a sufficient amount of cash, the U.S. for the first time in its history will be unable to pay its commitments.” he continued.

Already on 1st of November, the U.S. may not be able to pay the required $ 55 billion in social and health insurance, as well as for military purposes.

U.S. debt problem is acute in front of Congress for more than two years. In 2011, the protracted debate has led to the fact that the international agency Standard & Poor's, for the first time since 1917, downgraded the U.S. credit rating (by one level, to AA +).

December 31, 2012 the national debt once again came close to the border ($ 16.4 trillion), and the Ministry of Finance had to go to the "extraordinary measures" - to free up about $ 200 billion for the current needs to avoid default. Only at the end of January 2013 Congress removed the threat of non-payment of bills by eliminating all restrictions on state debt to mid-May. National debt on May 19 was automatically approved as the maximum allowable - $ 16.7 trillion.

October round of discussion about increasing the debt limit is going to be particularly difficult.

A parallel debate, caused by Obamacare, showed that the Republicans and the Democrats lose the ability to negotiate. Even under the threat of stopping government funding on October 1, when the next fiscal year begins, the political parties can not approve the budget.

Republicans in the House of Representatives agree to approve the budget but without allocation of funds for Obamacare. The Democratic-controlled Senate doesn’t endorse such option. Republicans agree to raise the debt ceiling only in exchange for a freeze of Obamacare program for the year. President Barack Obama insists on raising the limit without conditions and refuses to discuss the proposal of the Republicans.

Unlike previous years, now even secret negotiations are not conducting on the agreement that would satisfy both sides.

The situation of public debt, coupled with the uncertainty of the future of the stimulus program from the U.S. regulator, is unnerving market participants. The new alarm message from the Treasury has caused a moderate decrease in stock market indices - on Wednesday, the Dow Jones index lost 0,4%, S&P 500 fell by 0,3%, NASDAQ - by 0.2%. Futures for Brent crude fell $ 0.72 – the current price of barrel is $ 107.92.