Treasury Debt Ceiling Looming Large

According to the Treasury’s daily statement for the last day of November, total public debt subject to the Congressional debt limit of $15.194 trillion is now $15.067 trillion—only $127 billion (less than 1%) away. At the current monthly run rate of around $90 billion, the ceiling is likely to be reached early in 2012.

The debt agreement from August of this year empowers President Obama to raise the limit by another $1.2 trillion. However, that only buys about an additional 13 months, depending upon how economic and financial variables shake out in the quarters ahead, and the sequestration feature of the law is designed to offset every dollar of that increase beginning in 2013.

In other words, unless federal politicians can do some slick backstepping in the next 13 months—which the prospect of an election year makes all the more challenging, I think—then the enlarged federal deficits that have made our economy the envy of the austerity-smitten world of late will rapidly contract, with severe financial and economic consequences to follow, including even higher debt-to-GDP levels (unless, of course, the private sector makes an unexpectedly swift return to health and takes the credit baton in hand once again—an outcome we don’t advise holding one’s breath for).

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