Click to enlarge:
The chart above is updated through May 14. It shows the debt ceiling limit (red line), the actual debt accumulated (blue line) and a linear regression of debt growth since the limit was last raised on January 31.
The linear regression has a 99% correlation with accumulated debt. Given this strong relationship, it’s not hard to predict debt growth over the next few months. If this regression holds true, the U.S. should reach its debt limit sometime in early September. This is consistent with the Treasury department’s projection of reaching the debt ceiling “later this year.”
Notice we said reach and not surpass. Once the debt ceiling is reached, the Treasury might start using “other means” to avoid another messy political fight prior to the election. For instance, they can initiate a debt issuance suspension period and borrow against trust funds for necessary cash. We detailed this earlier this month.
In the stories below, Boehner and Romney seem to be itching for another debt ceiling fight. Boehner even went as far to say that voting on this will start before the election. Is he signaling that he knows the debt ceiling will be reached before the election?
The administration criticized the Republicans that their policies were bad politics. However, if the debt ceiling is reached before the election, the administration can use these “other means” to their advantage. If the Democrats truly believe the Republicans have bad policies that voters will reject, they should welcome a debt ceiling fight before the election.
We have argued that the debt ceiling fight, whether it occurs prior to November or not, will become a major election issue this fall. Yesterdays political rhetoric did nothing to change our opinion. Is this the biggest political issue no one is talking about?
The Washington Post – Boehner sees battle over debt limit as ‘action-forcing event’
House Speaker John A. Boehner plans to demand deep cuts in government spending in exchange for raising the federal debt limit, setting the stage for another tense standoff with Democrats over the soaring national debt. In remarks prepared for delivery Tuesday at the Peter G. Peterson fiscal summit, Boehner (R-Ohio) welcomes the next battle over the debt limit as an “action-forcing” opportunity to rein in government spending and said he will “again insist on my simple principle of cuts and reforms greater than the debt-limit increase.” “This is the only avenue I see right now to force the elected leadership of this country to solve our structural fiscal imbalance,” Boehner says, according to highlights of the speech provided to the Post. “If that means we have to do a series of stop-gap measures, so be it. But that’s not the ideal. Let’s start solving the problem.” … “We shouldn’t dread the debt limit,” Boehner will say Tuesday. “ We should welcome it. It’s an action-forcing event in a town that has become infamous for inaction.”
The Politico – Harry Reid fires back at John Boehner debt plan
Senate Majority Leader Harry Reid (D-Nev.) had a harsh response to Speaker John Boehner’s latest debt-ceiling demands: Keep this up, and nobody’s going to like Republicans anymore. Boehner’s stand — that any increase in the debt limit will have to be offset, and then some, by spending cuts — triggered another round of partisan wrangling Tuesday. Speaking to reporters, Reid accused Boehner and congressional Republicans of instigating another round of brinksmanship with his latest debt demands. “It’s pretty clear to me that the tea party direction of the Republican Party is driving them over a cliff,” Reid told reporters. “If [Boehner] continues this, it’s going to be a Republican party that the Republicans won’t like,” Reid continued. “They don’t even like it very much now. The only people who like the Republican folks in Congress today are the Republicans in Congress. No one else likes them, including all the Republicans around the country.” Top Senate Democrats also lashed out at Boehner, with Sen. Chuck Schumer (D-N.Y.) warning of another congressional showdown over the nation’s finances.
The Wall Street Journal – Boehner Draws Line in Sand on Debt
House Speaker John Boehner said Tuesday that any increase in the government’s borrowing limit must be accompanied by spending cuts and other budget savings of greater value, and he rejected tax increases as part of any deal to reduce the federal deficit. Those positions signaled to the White House that congressional Republicans are prepared for fiscal brinkmanship at the end of the year, when Bush-era tax cuts are scheduled to expire, large automatic spending cuts are set to begin and the government reaches its $16.394 trillion borrowing limit. “It is a line in the sand because Washington has kicked the can down the road, kicked the can down the road, kicked the can down the road, and the American people think we’re crazy,” Mr. Boehner, an Ohio Republican, said at a Washington event hosted by the Peter G. Peterson Foundation, a group that pushes for deficit reduction. Mr. Boehner succeeded last year in forcing the White House and congressional Democrats to agree to the same terms. But that showdown almost led the U.S. government to default on its obligations before they reached a last-minute agreement to raise the debt ceiling by more than $2 trillion and require spending cuts of a similar size. White House spokesman Jay Carney said Tuesday, in response to Mr. Boehner’s remarks, “We cannot hold the full faith and credit of the United States government hostage to one party’s political agenda.”The Obama administration has argued that the debt-limit debate should be severed from negotiations on taxes and spending because political gridlock could cause the government to default, possibly creating a financial crisis.”This commitment to meet the obligations of the nation, this commitment to protect the credit-worthiness of the country, is a fundamental commitment you can never call into question or violate because it’s the foundation for any market economy,” Treasury Secretary Timothy Geithner said Tuesday in a different session at the Peterson Foundation event.
Bloomberg.com – Romney Attacks Obama Over Recovery Citing U.S. Debt Load
Mitt Romney decried the ballooning federal debt, accusing President Barack Obama of contributing to a mounting deficit he said stifles economic recovery and “threatens what it means to be an American.” “America counted on President Obama to rescue the economy, tame the deficit and help create jobs,” the presumed Republican presidential nominee told supporters in Des Moines, Iowa, yesterday before winning primaries in Nebraska and Oregon. Criticizing the $831 billion stimulus enacted shortly into Obama’s term and other administration actions, Romney said the president “bailed out the public sector, gave billions of your dollars to companies of his friends and added almost as much debt to the country as all the prior presidents combined.” As a consequence, “we are now enduring the most tepid recovery in modern history,” Romney said. Romney’s concerns aren’t being echoed in financial markets, where Treasuries are rallying. Yields on the government’s benchmark 10-year notes fell to 1.77 percent from this year’s high of 2.40 percent almost two months ago, according to Bloomberg Bond Trader data. The yield is 10 basis points, or 0.1 percentage point, above the record low and the rates are about a quarter of the 50-year annual average of 6.49 percent.With his speech in Iowa, a battleground state in the presidential race, Romney returned to the economic themes he is emphasizing after the focus shifted to Obama’s May 9 endorsement of gay marriage. Romney used a speech on May 12 at an evangelical Christian university in Virginia — his last public appearance before yesterday — to reaffirm his opposition to same-sex marriage.
Source: Bianco Research