The U.S. government's debt is nearing $15.8 trillion. And now there are reports that at the recent pace of debt growth, the U.S. will reach its $16.4 trillion statutory debt limit some time in October — just before the 2012 election.
According to a report by Investor's Business Daily, the government can employ some accounting maneuvers to stay below the ceiling for a few months, giving lawmakers a grace period. But if the economy continues to weaken -- and federal tax receipts decline in growth -- the debt limit deadline could arrive just in time to play a large role "the super-charged environment of a presidential election." In addition to the debt limit, Congress must also decide what it wants to do about the pending tax increases -- which, collectively, would be the largest tax hike in U.S. history -- as well as the automatic spending cuts that were a part of last summer's debt ceiling deal.
Already, Fitch has warned that the U.S. will lose its AAA credit rating without a credible deficit-reducing plan. And "paired with last year's Standard; Poor's downgrade, a Fitch cut would add chaos in financial markets and raise U.S. borrowing costs," according to IBD.
