In an early and perhaps surprising notice, Treasury Secretary Timothy Geithner notified the U.S. Congress on Wednesday, Dec. 26, 2012, that the United States would reach the authorized debt limit on Monday, December 31, 2012. (Here is an article on the notice sent to Congress and here is an article on the potential impact of reaching the debt limit.)
As recently as October, the Treasury still had about $172 billion remaining in the debt ceiling. In November 2011, the Treasury borrowed $119 billion, and it appeared that the borrowing could be slowed somewhat to stretch the debt ceiling into early 2013. As November 2012 closed, the Treasury did slow borrowing to about $109 billion with a remaining balance of about $63 billion. (Here is the statement of the U.S. Monthly Debt for November 2012. The remaining amount under the debt limit is in the lower right.)
Even though there was an effort to slow borrowing in the prior year (December 2011 borrowing was $113 Billion), December 2012 borrowing will, according to the notice from the Treasury, consume the remaining $63 billion. (Here is a link to an explanation of the debt ceiling issue.)
This means that in addition to the fiscal cliff issues on December 31, now the United States also faces the limit in the total debt of the country and must take steps to address both issues.
A similar crisis developed in August 2011 that contributed to the downgrading of the United States public debt rating by Standard & Poor’s, one of the top rating agencies in the world, from AAA to AA+ with a “negative” outlook for the future. (Here is a link to an article in the New York Times from August 5, 2011, on the downgrade of the U.S. Debt rating.) Gold and Silver both responded to the U.S. Debt downgrade announced on August 5, 2011, and from that date forward to the end of August 2011, Gold increased in value by about 9 percent, and Silver by about 5 percent, while the S&P 500 was up 1.7 percent for the same period.
No one can predict the outcome of the fiscal cliff and the debt ceiling issues. Of course, no one can predict how the rating agencies will respond to the returning crisis, and likewise, the price of Gold and Silver.
The U.S. Debt hit the $16.4 trillion debt ceiling, according to Treasury, on Monday, December 31, 2012. The investment markets will respond to the news and perhaps set the tone for 2013.
UPDATE: JANUARY 1, 2013
U.S. Treasury Secretary Timothy Geithner notified the U.S. Congress that he was suspending payments to a government worker retiree fund because of the debt limit. Here is the article reporting the news.
The Treasury Secretary has initiated a “debt issuance suspension period” which will last until February 28, 2013. The efforts to withhold payments will create, according to reports, about $29 Billion under the current limits.
Here is another story on the efforts of the U.S. Treasury.
The U.S. Senate and the House of Representatives have been seeking a deal on legislation to avoid the “fiscal cliff” but any extension or modification to the debt limit has not been included in final language.