Another fiscal time bomb's ticking: Debt ceiling

  • Updated: November 27, 2012 - 7:23 PM

Limit will be hit in late December with less room to cope.

WASHINGTON - While official Washington is focused on potential tax hikes and automatic spending cuts, another fiscal crisis looms on the horizon. A report released on Tuesday warned that the federal government is likely to hit a ceiling on issuing new debt come late December and could begin defaulting on obligations by mid-February.

The report from the influential Bipartisan Policy Center, a policy think tank, also highlighted why there's less room for the Treasury Department to maneuver than during last year's debt-ceiling debacle. The center warned that financial markets may see greater turmoil than in 2011.

The government should hit its $16.394 trillion debt limit during the final week of December, according to the center. The Treasury Department can, as it did in 2011, turn to a number of extraordinary measures to avoid defaulting on the debt it has already issued. The juggling act by Treasury is likely to run out, however, somewhere around mid-February.

That raises the prospects of a debt default by the world's largest and most developed economy, unheard of in modern times. Congress and the Obama administration last year dragged out negotiations to raise the debt ceiling -- something previously done year after year without great controversy -- over a period of roughly eight months. There won't be that luxury this time.

"The extraordinary measures this year will yield less money to Treasury to use than they did in 2011. That money will get you less time," said Steve Bell, director of economic policy for the Bipartisan Policy Center.

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