By Denny Gulino

WASHINGTON (MNI) – The U.S. Treasury begins to run out of borrowing
authority on Friday but no crisis looms. Congress has already set out
the procedures to extend the debt limit until early 2013 and reserved
for itself the unlikely prospect it could disapprove.

A U.S. Treasury official told reporters Tuesday morning that the
convoluted process extending the debt limit begins at the end of the day
Friday when Treasury’s cash balance is expected to be drawn within $100
billion of the limit when a number of year-end trust fund interest
payments totaling about $82 billion occur.

The additional $1.2 trillion in borrowing authority is the third
and final extension provided for in the agreement with the White House
that spawned the supercommittee, which subsequently failed to settle on
an alternative budget arrangement. The first extension under the
agreement was for $400 billion and the second, in September, $500
billion.

While Congress gave itself the option to deliver a joint resolution
of disapproval which could block the $1.2 trillion extension — which is
unlikely to happen for a variety of reasons — President Obama can
neutralize any resolution with a veto.

The $1.2 trillion is expected to last until about December 2012 but
that is not the drop dead date when borrowing would have to stop. That
will be postponed, if necessary, by the series of now institutionalized
extraordinary measures” which will postpone hitting the limit for at
least another couple of months.

That will be well past the presidential election and the ferocity
of any battle for and against another increase in the debt limit will be
determined by whether Republicans or Democrats are in the White House
and by which political party holds majorities in the two Houses of
Congress.

There is also theoretically possible that Congress could meanwhile
come up with another budget agreement including another debt limit
increase.

The debt limit is currently at $15.194 trillion and after the $1.2
trillion is added, it will go to $16.394 trillion. It is the magnitude
of that number that has sharpened the partisan battle over increasing
the government’s power to borrow more money.

While borrowing ultimately has to be done to pay government’s past
obligations, the threat of default is a powerful lever which deficit
hawks seize upon to attempt to extract changes in budget policy and
which reinforces calls for a balanced budget amendment to the
Constitution.

If the next debt limit is reached in 2013 accompanied by more
congressional paralysis it will prompt memories of the August
self-inflicted agony on Capitol Hill, when a government shutdown was
threatened if there were no new borrowing permitted by Aug. 2. The
last-minute agreement which led to the Budget Control Act of 2011 did
not prevent the first downgrade of the U.S. sovereign credit rating by
Standard and Poor’s, which blamed the underlying disagreement on budget
priorities that led to the congressional brinksmanship.

** Market News International Washington Bureau: 202-371-2121 **

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