How High Will The Debt Ceiling Go?

On February 3, 2011, in Debt Ceiling, Deficit, Economy, Obama, Spending, by Travis Cottrell

The House Republicans will seek to cut $74 billion from President Obama’s budget request for fiscal year 2011.  This is a sign that the debt ceiling will have to increase in March and that we will not have the dramatic battle some economists had feared.  So how high will the debt ceiling go?

If we are set to reach a deficit of $1.5 trillion for fiscal 2011 and the CBO has estimates of $1.1 trillion for 2010, how high does Congress need to set the Debt Ceiling?  We are currently limited to carrying a debt load of $14.3 trillion and we will surpass that amount sometime this spring.

When Congress last increased the Debt Ceiling in February of 2010, it increased by nearly $2 trillion and at a rate of about 15%, so one would assume it would increase at a similar rate considering the forecast deficit.  Since the Republicans are already backing off the $100 billion in cuts they promised in their platforms during the 2010 campaigns, I can only assume they will fail to turn around the “Debt Ship” as it sails off the edge of the Earth.

The U.S. Debt Ceiling will likely need to rise to $16.5 trillion in order to keep borrowing to pay for Social Security, Medicare and the interest on the debt we already have.  At that level, we will likely have an accumulated debt at more that 100% of our GDP.  This could cause S&P to lower the U.S. debt rating from its AAA level.  Making it harder for the government to sell Treasury Bonds at the current interest rates offered.

I knew all along we would have to increase the Debt Ceiling, but I had hopes that the spending cuts proposed by the Congress would be deeper and signal a real determination to correct the problem.  Until the entitlement programs are reined in, the deficit will grow and the system will ultimately fail.

 

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