hwy120

U.S. Approaches Debt Ceiling: Here's What It Means

OK, so technically speaking we have just shy of two weeks before the United States could hit its $14.29 trillion debt borrowing limit on May 16. Loads of time, right? But states and local communities are likely to see the impact earlier than that, as the Treasury Department takes steps to deal with possible loan defaults.

According to an article by The Wall Street Journal, the Treasury will stop issuing state and local government series securities (SLGS) starting on Friday, May 6. In turn, that will hamper the ability of states and cities to lend. Yep, there will be another crunch on the credit facilities available to small business owners. Just when you thought things were better!

In two weeks, if Congress has not acted to raise the debt ceiling, the Treasury could stop paying money into the Exchange Stabilization Fund, which could mean more rate fluctuations. Not a great thing for any small business seeking to increase its international presence or boost its exports.

The truth is, no matter how well you have your financial house in order as a business owner, our government's debt problem is a serious threat to our overall economic recovery.

The details of the Treasury's plans to prepare for possible default are spelled out in a letter sent May 2 by Treasury Secretary Timothy Geithner to the U.S. Speaker of the House John Boehner. Here's the excerpt of the letter that really caught my attention:

"As I have written previously, default by the United States on its obligations would have a catastrophic economic impact that would be felt by every American. A broad range of government payments would have to be stopped, limited or delayed, including military salaries, Social Security and Medicare payments, interest on debt, unemployment benefits and tax refunds. A default on the Nation’s legal obligations would lead to sharply higher interest rates and borrowing costs, declining home values and reduced retirement savings for Americans. Default would cause a financial crisis potentially more severe than the crisis from which we are only now starting to recover.

I want to emphasize that, contrary to a common misperception, the debt limit has never served as a constraint on future spending, nor would refusing to increase the debt limit reduce the obligations the country has already incurred.  Increasing the debt limit merely permits payment of obligations Congress has already approved to citizens, servicemen and women, businesses and investors.  In order to honor those obligations, increasing the debt limit is unavoidable."

The truth is that no matter which party gets its way as Congress comes back to debate our debt problem, the Associated Press reports that government spending is likely to grow by trillions of dollars over the next 10 years. It is just a matter of how much it will grow.

The party-line approaches also differ in one very, very important way that I am oversimplifying here: The Democrats seek to put a limit on government borrowing on a year by year basis, using the surplus from any given year to pay down debt; the Republicans are pushing for an overall spending limit. Both approaches will require the sort of cuts in social programs that Americans hate to think about even though they support them on paper. So, brace yourself.

Wireless Business Solution Zee Tawasha