Last week's vote by the US House of Representatives has pushed out the budget debate into late spring, avoiding a repeat of August 2011 - for now. The Senate is likely to follow, approving the bill in its current form, with the Obama administration signing it into law.
Reuters: - Wednesday's vote by the Republican-controlled U.S. House of Representatives to extend the government's borrowing power until May 19 was no different.
It temporarily removed a hazard - a potential default within the next month - that only existed because Republicans created it. They initiated Wednesday's vote after taking a beating in public opinion polls for engaging in budget brinkmanship over the "fiscal cliff," a series of budget deadlines that came together at the end of 2012, which could have resulted in huge tax increases and spending cuts had Congress not acted to either eliminate or postpone most of them.
Based on the expected treasury issuance after May 19th (assuming we had no debt ceiling) it is possible to estimate at what point the Extraordinary Actions "juice" will run out.
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| Source: JPMorgan |
We are looking at mid to late July before we have a potential repeat of August 2011. It's not difficult to predict what will happen in July however. The politicians will take the nation to the brink once again and at the last moment will kick the can down the road. We've seen this movie before. But for now, what Reuters calls "hazard" has been avoided.
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