On February 13th, President Obama spoke from the White House in support of his new record setting $3.8 trillion budget proposal. In the speech, the President alluded to many different aspects in the budget that would help spur economic recovery, but in one area, he also intimated that the debt ceiling would be reached at the end of September, creating a major crisis and budget battle just two months before the Presidential elections in November.
Yet it turns out all of our analyses have been for naught (if 100% correct). Because it is none other than President Barack Obama who has been kind enough to point out, that on September 30, 2012, or in just over 7 months, total US debt subject to the limit will be, wait for it, $16,333,900,000,000. Why is this an issue: because the final debt ceiling that Obama has been afforded with automatic Senatorial roll overs (even as Congress theatrically votes these down), is $16,394,000,000. In other words, with two months ahead of the election, the US will have a de minimis $60 billion in debt capacity. And since the implied burn rate is $133 billion/month this means that the United States will be in full blown debt ceiling hike chaos just as the final electoral debates take place. - Zerohedge
What is interesting about this nexus event is that during an election year, very few Congressmen like to debate and vote on controversial legislation that could be used against them by their opponents back home. If history serves from last year's debt ceiling showdown, more Americans were against raising the limit on borrowing and debt, and the consequences of voting yea or nay on raising it will have their own perils.
Should Congress choose not to raise the debt ceiling if it reaches its limit as predicted by President Obama, then chances increase of a potential government shutdown as the Treasury Secretary begins to canabalize Federal retirement funds and the budgets of other agencies. Additionally, the President could invoke the same propaganda he used in 2011 when he insinuated that programs like Social Security and Medicare could be in jeopardy since the government will be bankrupt of revenues.
On the flip side of this, is the ire that incumbent Congressmen, as well as the President, could receive from voters in November who overwhelmingly desire the government to become more fiscally responsible on their spending, as seen by the results of the 2010 mid-term elections when tea party conservatives won record number of seats in the House of Representatives.
The bottom line for the US government is that the consequences of following a Keynsian policy of debt and borrowing has created a never ending cycle of reliance on more and more debt just to sustain itself. In September, when the President himself believes the debt ceiling limit of $16.4 trillion will be reached, the consequences will result in a massive showdown between Congress and the White House that will assuredly have serious political consequences to both sides no matter which way the House votes on the issue.
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