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Report: Government is weeks away from hitting debt ceiling

McClatchy Newspapers

November 27. 2012 8:58PM

WASHINGTON - While official Washington is focused on potential tax hikes and automatic spending cuts, another fiscal crisis looms on the horizon. A report released Tuesday warned that the federal government is likely to hit a ceiling on issuing new debt come late December and could begin defaulting on obligations by mid-February.

The report from the influential Bipartisan Policy Center, a policy think tank, also highlighted why there's less room for the Treasury Department to maneuver than during last year's debt ceiling debacle. The center warned that financial markets may see greater turmoil than in 2011.

The government should hit its $16.394 trillion debt limit during the final week of December, according to the center. The Treasury Department can, as it did in 2011, turn to a number of extraordinary measures to avoid defaulting on the debt it has already issued. The juggling act by Treasury is likely to run out, however, somewhere around mid-February.

That raises the prospects of a debt default by the world's largest and most developed economy, unheard of in modern times. Congress and the Obama administration last year dragged out negotiations to raise the debt ceiling - something previously done year after year without great controversy - over a period of roughly eight months. There won't be that luxury this time.

"The extraordinary measures this year will yield less money to Treasury to use than they did in 2011. That money will get you less time," said Steve Bell, director of economic policy for the Bipartisan Policy Center.

In last year's debt ceiling debacle, which resulted in an embarrassing downgrade of the U.S. debt rating by Standard & Poor's, the crunch time came after April, when millions of Americans paid what they owed in income taxes.

This time, the government is poised to run out of temporary fixes in February.

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