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Debt Ceiling Bill Nothing More Than a Band-Aid – Money Morning

This is a syndicated repost published with the permission of Money Morning. To view original, click here. Opinions herein are not those of the Wall Street Examiner or Lee Adler. Reposting does not imply endorsement. The information presented is for educational or entertainment purposes and is not individual investment advice.

We have a short-term debt ceiling fix – with emphasis on short term.

U.S. President Barack Obama Monday night signed into law a bill suspending the debt ceiling, a move that allows the government to avoid default-at least until August when Congress will again have to act to prevent such a scenario.

The new law lifts the current debt limit through May 18, allowing the federal government to continuing borrowing to pay its bills until then.

But Congress does have more leeway than the May 18 deadline. The Treasury can use “extraordinary measures” to access funds, which will give it until August before the risk of default comes up again.

An Interesting Provision in the Debt Ceiling Bill

The bill also suspends pay for Congressional members should they fail to pass a fiscal 2014 budget resolution by April 15. This rider is called the “no budget, no pay” provision. The suspended funds would be held in an escrow account until the budget is passed. If an agreement is not reached, the salaries would resume in January 2015, at the start of the 114th Congress.

The bill made its way to the Oval Office after sailing through the House in a 285-144 vote about two weeks ago where it received broad bipartisan support. Last week it passed through the Democrat-controlled Senate 64-34, meeting some resistance because the bill did not include spending cuts.

President Obama had promised he would pass the bill if and when it made it to his desk. The president applauded the legislation deeming it a positive step toward an eventual debt deal. President Obama is ultimately vying for a more comprehensive and bigger debt deal aimed at reducing health care spending, and eliminating certain tax loopholes and deductions.

“That’s a balanced approach that is broadly supported by the American people and it’s the responsible way to reduce our deficit. It’s an approach that was endorsed by several bipartisan commissions who have addressed with their own proposals the fiscal challenges we face, and it’s the approach that the President absolutely intends to put forward as he continues negotiations with Congress,” Jay Carney, White House press secretary said in a statement last week.

What’s After the Debt Ceiling Bill?

The debt ceiling bill does little except “kick the can down the road.” It’s merely a temporary deferral of the debt ceiling. Come May 19, the debt limit will be increase by an amount “necessary to fund commitment incurred by the Federal Government that required payment.”

That amount will be some $450 billion, according to the Bipartisan Policy Center. The Center also projects the debt ceiling will need to be raised again in August.

Policymakers’ calendars are full of fiscal issues circled in red that must be addressed in the months ahead.

Republicans and Democrats on Capitol Hill will also have to take up the sequester set to kick in on March 1. Roughly $85 billion across-the-board spending cuts will wallop scores of government funded programs such as Medicaid, Medicare and Social Security. A cache of government contractors will also be adversely affected.

Also sometime in March, the White House is expected to propose its budget plan for the fiscal year that starts Oct. 1.

On March 27, sans a Congressional vote to extend funding, government funding for a bevy of federal programs will expire. Without a “yay” vote, the government faces a partial shutdown.

April 15 brings the deadline for the House and Senate to pass budget resolutions or else lawmakers face the ominous prospect of not getting paid. While that seems like incentive enough to coerce policymakers to ink some sort of deal, they are a stubborn bunch so nothing is certain. Plus, the last time a budget deal was passed was in April 2009.

That is exactly what is keeping businesses, investors and taxpayers on edge. They will handle the bad news, and they will gladly accept the good news, but it’s looming uncertainty that they all find so difficult to deal with.

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