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. – 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

Category: Think Tank

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

11 Responses to “More Evidence A Debt Ceiling Fight Is Coming Before The Election?”

  1. ilsm says:

    Why would a new sideshow in the capitol be any different.

    Boehner, Romney, et al want to renege on the trillions in “trust funds” which mad the republican tax cut deficits appear smaller.

    End all the occupations, end perpetual war, and allow the Bush tax cuts to expire.

    No one is for keeping the deal made last August.

  2. MayorQuimby says:

    Repubs will try to orchestrate turmoil to get elected whethey themselves fo the same thing…overspend.

    But Dems are no better since this overspending will destry our current economic system if not stopped.

    Eventually markets will respond and crash (not just stocks either) and when they do we will get the mother of all recessions as completely unaffordable pensions, social benefits and medical programs get cut piece at a time.

    No free lunches. All debt (and deficits) come at the expense of the future. They all just reallocate wealth from tomorrow into today. We are destroying our future so wemdo not have to recognize that our current standard of living is a fantasy.

    Reality is coming. Not next week or month but eventually. Grow up people. That means YOU (if you support the INANE concept of using exponentially more debt to spend our way out of debt).

  3. 873450 says:

    McConnell Admits To Taking Debt Ceiling ‘Hostage’: It’s ‘Worth Ransoming’

    In a stunning bit of candor, Senate Minority Leader Mitch McConnell (R-KY) admitted in the Washington Post today that his party had taken the debt ceiling “hostage,” and that some of his colleagues were willing to “shoot” it: “I think some of our members may have thought the default issue was a hostage you might take a chance at shooting,” he said. “Most of us didn’t think that. What we did learn is this — it’s a hostage that’s worth ransoming.”

    The Post added that McConnell “said he could imagine doing this again.”

  4. AtlasRocked says:

    Why are we still calling it debt and borrowing? Why doesn’t every American consider this a toxic concept for financing a nation?

    1. The federaling borrowing is now mathematically impossible to pay back at best case conditions. ( I can supply the math if you want it – it’s 4th grade arithmetic.)
    2. The “loans” are not true two-party loans with both parties consenting to terms. The borrowers decree the loan on taxpayers, 20 million who can’t vote, around 90M on citizen that object to the underlying lawless, immoral loan terms, and 20M more “under 30″ who maybe have voted on acceptance 1 or less times, but they’re so confused by the lies from Washington that they don’t what is being sold to them. We are forcing a 100% failing idea, Keynesian loans, on almost 120M unapproving citizens who have historical proof of 100% failure.
    3. The interest rate is at the whim of the borrower.
    4. There is no defined payback plan on the duration of the loan.
    5. The borrower can borrow from itself to make payments on it’s principle and interest.

  5. techy says:

    MayorQuimby : USD is world’s reserve currency and it is a FIAT currency, all debts can be paid by mere printing.

    go look at the debt chart for last 50 years.

  6. MayorQuimby says:

    Haha…good one. Weimar tried that and it ended up collapsing the country and plunging the world into war AFTER their entire population was impoverished.

    If you think that is coming, you might be right. Instead, I think a deflationary collapse and massive austerity is coming along with US default.

    Either way we are in for a shit storm and there is no mathematical possibility of any normal, easy way out.

    Pick one. Depression via hyperinflation or deflation.

    And don’t forget that the consumer is 70 percent of our economy. When prices double or triple, it is game over and the stock market will collapse.

    Hyperinflation doesn’t mean we pay off debt with unbacked fiat. It means we CONTINUALLY INCUR DEBTS VIA DEFICITS AND PAY THEM OFF CONTINUALLY WITH UNBACKED FIAT.

    QE is a first step. Bernanke will eventually say NO MAS to the idiots on CNBC and he will be vilified and it will be something to behold after what and Greenspan have done.

    Just watch.

  7. ilsm says:

    “Weimar tried that and it ended up collapsing the country and plunging the world into war AFTER their entire population was impoverished.”

    No! The root causes of WW II existed long before Weimar. There are many and hyper inflation is a false equivalence.

    Weimar inherited a nation impoverished by 150 years of militarism, and one big lose with punitive reparations.

    Hitler took over because he divided Germany between his Nazis and the Bolshevists.

    WW II was brought about by European militarism, this Prussian king named Frederich, which Bastiat warned 90 years earlier.

    For the US, just raise taxes, and end perpetual war. There is no one building seige guns to attack US’ maginot line. And the star wars cluster fumble would not stop a pebble, but is good welfare for miliatarists.

    5 % of US GDP going to war waste causes dissolution of the productive economy.

    The tea party is dividing the proud Merikan from the socialists……………………………..

  8. Futuredome says:

    It was deflation that brought Hitler in. Basically the choice was Nazism or Stalinist influenced Russian “communism”. Easy, easy choice for Germany. Greece has the same decision. It would be like the Democrats in power but to overwhelm the “market liberal”(I say this loosely) Republicans, they have to allign with a Naziesque type party to get through major government job creation programs.

    Lets note if the recovery goes on another 2/2.5 years, the federal deficit will decrease markedly. This is true in any recession. Once the recessionary period ends, the deficits falls. Trying to force it down with cuts to fast, may trigger another recession, triggering higher real deficits.

  9. DG says:

    Mayor Quimby,

    You just don’t get it. Weimar owed its debts in foreign currency. We owe it in our currency. That makes all difference. Have you EVER taken macro? Was it so long ago, you have forgotten?


    Your 4th grade arithmetic likely does not take into account inflation. Debts inflate away. If the debt truly could not be repaid, why are we able to borrow at less than 2%? If the debt truly could not be repaid, why does Japan borrow at less than 1%?

    If your 4th grade math cannot explain that (and it cannot), then it is wrong.

  10. DG says:

    Should have mentioned inflation AND GROWTH. If you assume the US grows, then the debt gets smaller and smaller as a percent of GDP. If you assume it does not, then you should probably leave now. Don’t let the door hit you on the way out of the country.

  11. victor says:

    The US is in best shape worldwide: we’re paying back our national debt in devalued $, at low/negative interest rates that are dictated to the creditors by the Fed and within an environment of inflation. Besides, the debtor usually has the upper hand. Stop lamenting that we’re broke: the Federal Gov and each State are INCREDIBLY rich: land, territorial waters (with mineral/above ground rights) AND the power to collect taxes, fees, excise taxes, tariffs, royalties etc. Privatizing (but keeping the oligarchs at bay) just a SMALL, very small fraction of these assets could pay off the national debt and then some.