Month: July 2011

Budget Cuts & The Debt Ceiling

Jul 19, 2011

If we slash trillions from the federal budget, what does that do to our GDP?

Yield sign that reads "Debt Ceiling Ahead"
Be Aware of the Debt Ceiling

The summer of discontent stretches on. As July ebbs into August, we have no resolution on the federal debt limit issue. The possibility of default is still in play. Republican leaders want major cuts to entitlement programs as a condition of raising the debt ceiling; Democrats agree on the necessity of cuts but also want tax hikes for the wealthiest Americans to bring in added revenue.

A trillion-dollar divide. On July 14, CNBC.com reported that both parties had tentatively agreed on nearly $1.4 trillion worth of reductions to the federal budget. That’s not too surprising: $1.4 trillion is the projected size of the budget gap for the fiscal year ending in September. Republicans have called for $2.4 trillion in cuts.1,2

This federal belt-tightening is going to lead politicians, economists and consumers into the second part of the debt cap (more…)

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The D Word Haunts Wall Street

Jul 5, 2011

Is there a chance that America could actually default on its debt?

A pig hitting the debt ceiling
What will happen to the ceiling?

When will the debt ceiling issue be solved?  The NFL, the NBA, the EU, Congress … wherever you look, it seems people would rather wrangle these days than resolve their differences. The U.S. Treasury has set a hard deadline of August 2 for Congress to settle its divide on the federal debt ceiling, and if partisan bickering interferes, the world economy could suffer a severe hit.

 What would happen if we miss the deadline? According to federal budget analysts at the Bipartisan Policy Center, the Treasury would only be able to make a slight majority of its 80 million monthly payments in August. Treasury Secretary Timothy Geithner would likely be put in the same position as a struggling consumer low on cash and behind on his bills: he would have to selectively decide which debts to pay for the month and which to ignore.1

Should August 2 come and go without a solution, Congress’s inaction (and Geithner’s subsequent decisions) would have dramatic global repercussions. Most likely, his big priority would be to pay off bond investors so that a formal (more…)

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