The US debt crisis is back. It is not yet official because we may still be a couple of weeks away but Treasury secretary Lew announced that there will only be about $ 50 billion in cash around mid-October so the debt limit of $16.7 trillion will have to be raised. A close watch of Treasury debt shows that the total debt outstanding has been stationary at just below the debt limit. The Treasury has been taking all means necessary to make sure that there is more time until a crisis, but it is coming.
Both side of the debt crisis are fairly vocal on where they stand. The president says that he will not negotiate on this matter. Raise the limit so it will not be binding and I will give Congress nothing in return. His position is that the Congress is responsible for any fall-out from not increasing the limit. Republicans have stated that they are willing to increase the debt ceiling in return for cuts in spending. Cut the budget and slow the spending and the president will get his debt level increase.
All this means is that as we move through September there will be more posturing and talk like what was seen in July 2011. The result was a budget deal that included the spending sequester which the government is now living under. The US has weathered sequestering since March without any major hardship, but the period before the deal was marked by higher market volatility. We should expect the same as we move to the deadline in mid-October. There is no hard and fast date but this should be the focus of the Fall.