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.

News
A 1930 image of the Karl Albrecht Spiritousen and Lebensmittel shop, Essen. The shop was opened by Karl and Theo Albrecht’s mother; the brothers later founded Aldi
people
Arts and Entertainment
Standing the test of time: Michael J Fox and Christopher Lloyd in 'Back to the Future'
filmA cult movie event aims to immerse audiences of 80,000 in ‘Back to the Future’. But has it lost its magic?
Arts and Entertainment
Flora Spencer-Longhurst as Lavinia, William Houston as Titus Andronicus and Dyfan Dwyfor as Lucius
theatreThe Shakespeare play that proved too much for more than 100 people
News
exclusivePunk icon Viv Albertine on Sid Vicious, complacent white men, and why free love led to rape
PROMOTED VIDEO
Arts and Entertainment
Stir crazy: Noel Fielding in 'Luxury Comedy 2: Tales from Painted Hawaii'
comedyAs ‘Luxury Comedy’ returns, Noel Fielding on why mainstream success scares him and what the future holds for 'The Boosh'
Life and Style
Flow chart: Karl Landsteiner discovered blood types in 1900, yet scientists have still not come up with an explanation for their existence
lifeAll of us have one. Yet even now, it’s a matter of debate what they’re for
Arts and Entertainment
'Weird Al' Yankovic, or Alfred Matthew, at the 2014 Los Angeles Film Festival Screening of
musicHis latest video is an ode to good grammar. But what do our experts think he’s missed out?
Sport
New Real Madrid signing James Rodríguez with club president Florentino Perez
sportColombian World Cup star completes £63m move to Spain
Travel
Hotel Tour d’Auvergne in Paris launches pay-what-you-want
travelIt seems fraught with financial risk, but the policy has its benefits
Arts and Entertainment
booksThe best children's books for this summer
Life and Style
News to me: family events were recorded in the personal columns
techFamily events used to be marked in the personal columns. But now Facebook has usurped that
News
ebookA unique anthology of reporting and analysis of a crucial period of history
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

Programme Director - Conduct Risk - London

£850 - £950 per day: Orgtel: Programme Director - Conduct Risk - Banking - £85...

Business Analyst (Agile, SDLC, software)

£45000 - £50000 Per Annum + excellent benefits: Clearwater People Solutions Lt...

Finance Manager - Bank - Leeds - £300/day

£250 - £300 per day + competitive: Orgtel: Finance Manager - Accountant - Bank...

Compliance Officer - CF10, CF11, Compliance Oversight, AML, FX

£100000 - £120000 per annum + BONUS + BENEFITS: Harrington Starr: A leading fi...

Day In a Page

Noel Fielding's 'Luxury Comedy': A land of the outright bizarre

Noel Fielding's 'Luxury Comedy'

A land of the outright bizarre
What are the worst 'Word Crimes'?

What are the worst 'Word Crimes'?

‘Weird Al’ Yankovic's latest video is an ode to good grammar. But what do The Independent’s experts think he’s missed out?
Can Secret Cinema sell 80,000 'Back to the Future' tickets?

The worst kept secret in cinema

A cult movie event aims to immerse audiences of 80,000 in ‘Back to the Future’. But has it lost its magic?
Facebook: The new hatched, matched and dispatched

The new hatched, matched and dispatched

Family events used to be marked in the personal columns. But now Facebook has usurped the ‘Births, Deaths and Marriages’ announcements
Why do we have blood types?

Are you my type?

All of us have one but probably never wondered why. Yet even now, a century after blood types were discovered, it’s a matter of debate what they’re for
Honesty box hotels: You decide how much you pay

Honesty box hotels

Five hotels in Paris now allow guests to pay only what they think their stay was worth. It seems fraught with financial risk, but the honesty policy has its benefit
Commonwealth Games 2014: Why weight of pressure rests easy on Michael Jamieson’s shoulders

Michael Jamieson: Why weight of pressure rests easy on his shoulders

The Scottish swimmer is ready for ‘the biggest race of my life’ at the Commonwealth Games
Some are reformed drug addicts. Some are single mums. All are on benefits. But now these so-called 'scroungers’ are fighting back

The 'scroungers’ fight back

The welfare claimants battling to alter stereotypes
Amazing video shows Nasa 'flame extinguishment experiment' in action

Fireballs in space

Amazing video shows Nasa's 'flame extinguishment experiment' in action
A Bible for billionaires

A Bible for billionaires

Find out why America's richest men are reading John Brookes
Paranoid parenting is on the rise - and our children are suffering because of it

Paranoid parenting is on the rise

And our children are suffering because of it
For sale: Island where the Magna Carta was sealed

Magna Carta Island goes on sale

Yours for a cool £4m
Phone hacking scandal special report: The slide into crime at the 'News of the World'

The hacker's tale: the slide into crime at the 'News of the World'

Glenn Mulcaire was jailed for six months for intercepting phone messages. James Hanning tells his story in a new book. This is an extract
We flinch, but there are degrees of paedophilia

We flinch, but there are degrees of paedophilia

Child abusers are not all the same, yet the idea of treating them differently in relation to the severity of their crimes has somehow become controversial
The truth about conspiracy theories is that some require considering

The truth about conspiracy theories is that some require considering

For instance, did Isis kill the Israeli teenagers to trigger a war, asks Patrick Cockburn