The coming battle over the debt-ceiling limit

People are focuses on the government shutdown, but that will only be a precursor of the battle over the debt-ceiling limit. The limit will be hit between April 15th and May 16th. Kevin Hassett writes this:

. . . For those following at home, here is a rough sketch of how the game will likely play out.
The Federal Reserve, as fiscal agent for the U.S. Treasury, manages payments so long as the Treasury's account has a positive balance. If the Treasury hits the debt ceiling, it can continue to make payments until its bank account at the Fed empties. Once the account hits zero, payment stops: no interest payments, no Social Security checks, no subsidies to National Public Radio.
Even if Geithner is correct and the debt-ceiling limit is hit at the end of March, he has a few games that he can play to delay a default by slowing the net withdrawal of funds. He can tinker with government pension finances, draw on funds that are available to stabilize foreign-exchange markets, or possibly even shuffle gold reserves around.
The April 15 tax-filing deadline, with its influx of money to Washington, also could help the Obama administration delay the inevitable.

Accounting for all such possible maneuvers, it could be that the witching hour for default won't arrive until the end of June.
So to review: The U.S. may declare it has reached its borrowing limit at the end of March but not run out of money until the end of June. That gives Republicans three months – plenty of time – to appear to be standing up to Obama without actually forcing a default.
If Obama vetoes a bill raising the debt ceiling because he can't countenance its required spending cuts, let him defend that position. The same goes for the Democratic Senate, if it won't pass a bill from the House. It would be hard to pin the blame on Republicans as we inch toward financial disaster.
As June wears on, both sides will have to get serious in order to stave off default, and here is where House Speaker John Boehner holds all the cards.
He promised during the 2010 campaign that Republicans would cut spending by $100 billion. It's surprisingly easy to accomplish that, and voters will blame Democrats if government can't.
While Democrats may have an articulate president pressing all sorts of alarm bells, Republicans will enjoy something more potent: an actual mandate. Spending will get cut, and the debt ceiling will be lifted.
You can take that to the bank.



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