15.02.2013 - The day America hits the ceiling?

Tim Geithner has admitted that the US could reach its $16.4 trillion debt limit much sooner than thought. Nikhil Kumar imagines  the scene in Washington in  a month’s time if there is no deal (and it makes the fiscal cliff look like a picnic…)

President Obama, his shirt collar open and cuffs rolled up, is meeting in the Oval Office with Jack Lew and Tim Geithner, his incoming and outgoing Treasury Secretaries, and a small group of senior advisers. Brows furrowed, complexions pale, they are going over a soon-to-be-broadcast national address about the day’s events. Behind them, lights are set up, a lens is trained on the Resolute Desk. 

This will be his third Oval Office address since assuming power: the first came as oil gushed from the Deepwater Horizon rig in the Gulf of Mexico, the second when American troops ended combat operations in Iraq.

Overnight, Asian markets suffered their worst fall since the financial crisis, and in the morning the Dow followed suit. They’re calling it Black Friday. Nouriel Roubini, the economist known as ‘Dr Doom’ for his bearish pronouncements during 2008, has been on television, warning of another catastrophe.

What will the President say? That after Congress failed to raise the debt ceiling, he has been saddled with a series of tough choices. Every month, his government makes around 80m payments, all of which have been cleared by Congress. Cheques go out to military personnel, social security claimants, the unemployed and the more than 2.5m full-time staff on the federal payroll, including him.

But now, he will say, Congress has in effect blocked his power to write those cheques and countless others. His government is expected to book revenues of around $277bn (£171bn) in the four weeks to 15 March. But in the same period, it needs to pay bills totalling about $452bn.

He can’t make up the shortfall unless Congress raises the $16.4 trillion debt ceiling. He will keep pressuring the Republicans. But meanwhile he has to continue paying America’s creditors because, as he said during a January press conference, “we are not a deadbeat nation”. That will cost just over $38bn between 15 February and 15 March, though interest rates could spiral.

Throw in Medicare and Medicaid, military pay and pensions, tax refunds, social security and unemployment insurance, and the tab already hits the magic number of $277bn.

That means he can’t fund benefits to America’s veterans (worth around $28.8bn) or pay cheques and benefits to federal employees($19.9bn). He can’t fund the education department ($16.8bn) – meaning, for example, no special education programmes. He will have to suspend the courts and the FBI. There will be fewer flights because he can’t pay for the air traffic controllers to show up to work.

He could do the sums differently. But there’s no escaping the fact that America – and the world – is in uncharted territory. He thought about opening up Fort Knox, and selling the country’s gold. But that wouldn’t raise more than few months’ cash. And imagine what would happen to the gold price if the US floods the market with its reserves.

Other escape routes were fraught with legal tangles. There was the idea of minting a $1 trillion platinum coin and depositing it with the Federal Reserve to free up the government overdraft, or using the 14th amendment of the US Constitution, which says the “validity of the public debt of the United States... shall not be questioned” to unilaterally raise the ceiling. But his lawyers stamped on both ideas. Besides, who would buy American debt if it came with the threat of a legal battle over its credibility?

It wasn’t supposed to be this way. For weeks now, the President and Congressional Republicans have been holding competing press conferences about raising the ceiling. Failure to do so, the President said before his second inauguration, “would be a self-inflicted wound on the economy”. He warned: “It would slow our down our growth, might tips us into recession... So, to even entertain the idea of this happening, of the United States of America not paying its bills, is irresponsible. It’s absurd.” As the talks continued, headlines changed daily. One minute, the two sides were making progress on raising the limit, the next there was a yawning, partisan gulf. But everyone – papers, pundits, markets – expected a deal in the end.

Last week, Vice President Joe Biden entered the fray, talking directly with the Senate minority leader, Mitch McConnell. The dynamic duo had cracked the debt-ceiling nut before, in 2011, and more recently sealed the (partial) pact on the ‘fiscal cliff’. They were expected to bring the two sides together again. Until they didn’t.

Now, the country faces spending cuts deeper than ones that had been due to come into force in January. An even bigger threat is a catastrophic default. As the bills add up and the markets convulse, higher interest rates on US debt could push the Treasury into a corner not unlike Greece. Except, of course, the US, whose dollar is the world’s reserve currency, is not Greece. It can’t renegotiate its debts without triggering a global economic catastrophe. It won’t, the President will say. The idea – it’s absurd.

* The 15 February date is the earliest estimate in a recent report by the Washington-based Bipartisan Policy Center of when the US government might exhaust the special measures put in place two weeks ago to buy time while negotiations continue over the debt ceiling.

The measures, which give the government about $200bn in extra cash, could last until 1 March, according to the report, which also projects the $175bn shortfall between February 15  and March 15, and other figures mentioned above. Without tendering exact dates, Tim Geithner this week confirmed the timeline of mid-February to early March.

Voices
Hunted: A stag lies dead on Jura, where David Cameron holidays and has himself stalked deer
voicesThe Scotland I know is becoming a playground for the rich
News
people'When I see people who look totally different, it brings me back to that time in my life'
News
newsMcKamey Manor says 'there is no escape until the tour is completed'
News
Russell Brand has written a book of political analysis called Revolution
peopleFilm star says he is 'not interested in making money anymore'
PROMOTED VIDEO
Arts and Entertainment
Benedict Cumberbatch has refused to deny his involvement in the upcoming new Star Wars film
filmBenedict Cumberbatch reignites those Star Wars rumours
Sport
footballAccording to revelations from Sergio Aguero's new biography
News
news
News
people

Britain First criticised for using actress's memory to draw attention to their 'hate-filled home page'

Life and Style
Meow! ... Again, Kim Kardashian goes for a sexy Halloween costume, wrapping her body with a latex catsuit and high heeled knee boots
fashionFrom Heidi Klum to Kim Kardashian
News
news

Emergency call 'started off dumb, but got pretty serious'

News
ebooksAn unforgettable anthology of contemporary reportage
Extras
indybest
News
i100
Arts and Entertainment
JK Rowling is releasing a new Harry Potter story about Dolores Umbridge
booksChristmas comes early for wizard fans
Arts and Entertainment
filmsOculus Rift offers breathtakingly realistic simulation of zero gravity
Life and Style
tech

Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Compensation and Benefits Manager - Brentwood - Circa £60,000

£60000 per annum: Ashdown Group: Compensation and Benefits Manager - Compensat...

Data Analyst/Planning and Performance – Surrey – Up to £35k

£30000 - £35000 Per Annum plus excellent benefits: Clearwater People Solutions...

IT Systems Business Analyst - Watford - £28k + bonus + benefits

£24000 - £28000 per annum + bonus & benefits: Ashdown Group: IT Business Syste...

Markit EDM (CADIS) Developer

£50000 - £90000 per annum + benefits: Ampersand Consulting LLP: Markit EDM (CA...

Day In a Page

Wilko Johnson, now the bad news: musician splits with manager after police investigate assault claims

Wilko Johnson, now the bad news

Former Dr Feelgood splits with manager after police investigate assault claims
Mark Udall: The Democrat Senator with a fight on his hands ahead of the US midterm elections

Mark Udall: The Democrat Senator with a fight on his hands

The Senator for Colorado is for gay rights, for abortion rights – and in the Republicans’ sights as they threaten to take control of the Senate next month
New discoveries show more contact between far-flung prehistoric humans than had been thought

New discoveries show more contact between far-flung prehistoric humans than had been thought

Evidence found of contact between Easter Islanders and South America
Cerys Matthews reveals how her uncle taped 150 interviews for a biography of Dylan Thomas

Cerys Matthews on Dylan Thomas

The singer reveals how her uncle taped 150 interviews for a biography of the famous Welsh poet
DIY is not fun and we've finally realised this as a nation

Homebase closures: 'DIY is not fun'

Homebase has announced the closure of one in four of its stores. Nick Harding, who never did know his awl from his elbow, is glad to see the back of DIY
The Battle of the Five Armies: Air New Zealand releases new Hobbit-inspired in-flight video

Air New Zealand's wizard in-flight video

The airline has released a new Hobbit-inspired clip dubbed "The most epic safety video ever made"
Pumpkin spice is the flavour of the month - but can you stomach the sweetness?

Pumpkin spice is the flavour of the month

The combination of cinnamon, clove, nutmeg (and no actual pumpkin), now flavours everything from lattes to cream cheese in the US
11 best sonic skincare brushes

11 best sonic skincare brushes

Forget the flannel - take skincare to the next level by using your favourite cleanser with a sonic facial brush
Paul Scholes column: I'm not worried about Manchester United's defence - Chelsea test can be the making of Phil Jones and Marcos Rojo

Paul Scholes column

I'm not worried about Manchester United's defence - Chelsea test can be the making of Jones and Rojo
Frank Warren: Boxing has its problems but in all my time I've never seen a crooked fight

Frank Warren: Boxing has its problems but in all my time I've never seen a crooked fight

While other sports are stalked by corruption, we are an easy target for the critics
Jamie Roberts exclusive interview: 'I'm a man of my word – I'll stay in Paris'

Jamie Roberts: 'I'm a man of my word – I'll stay in Paris'

Wales centre says he’s not coming home but is looking to establish himself at Racing Métro
How could three tourists have been battered within an inch of their lives by a burglar in a plush London hotel?

A crime that reveals London's dark heart

How could three tourists have been battered within an inch of their lives by a burglar in a plush London hotel?
Meet 'Porridge' and 'Vampire': Chinese state TV is offering advice for citizens picking a Western moniker

Lost in translation: Western monikers

Chinese state TV is offering advice for citizens picking a Western moniker. Simon Usborne, who met a 'Porridge' and a 'Vampire' while in China, can see the problem
Handy hacks that make life easier: New book reveals how to rid your inbox of spam, protect your passwords and amplify your iPhone

Handy hacks that make life easier

New book reveals how to rid your email inbox of spam, protect your passwords and amplify your iPhone with a loo-roll
KidZania lets children try their hands at being a firefighter, doctor or factory worker for the day

KidZania: It's a small world

The new 'educational entertainment experience' in London's Shepherd's Bush will allow children to try out the jobs that are usually undertaken by adults, including firefighter, doctor or factory worker