With the Treasury running out of ways to defer or avoid key payments, Jack Lew, the Treasury Secretary warned Congress last week that his department was going to hit a roadblock by November 3rd which could trigger a sequence of events from the Treasury’s lack of approved funds that could send the economy into a tail spin.
While the Treasury has been working diligently to remain with the $18 trillion legal borrowing limit known as the debt ceiling, it only has about $90 billion left to play with before it will have to start defaulting on key payments. This includes things such as interest rate payments on government bonds and social security payments.
With Congress still at an impasse on the replacement Speaker for John Boehner, there is a possibility that Boehner will try and force the new debt ceiling increase through before he officially steps down at the end of the month. Without a Congress approved increased borrowing limit, the U.S. is facing another potential credit downgrade, similar to the events that led to the last one in 2011.
Other Major Worries
Another key economic issue at the back of everyone’s minds is the pending interest rate increase by the Federal Reserve. While most financially savvy companies and investors have already factored in at least a quarter point increase by the end of the year, there will still be an economic impact that will affect global markets as a whole.
China is also still a hot issue as despite the fact that the turmoil has calmed down for now, there is still a worry that China will unload another huge tranche of U.S. Treasuries to bolster its financial position. When China did this in the summer it was easily absorbed by the market, but with investors unsure of Congress’s decision making abilities at the moment, it may not be as well received if it happens again. With the clock ticking, it is time that Congress got its act together before the economic house of cards comes tumbling down.