Debt Ceiling Crisis 2.0

The nation will reach its debt limit on Dec. 31.

Posted: 12/27/2012 11:03 AM EST
fiscal cliff

When it comes to economic matters, New Year's Eve is looking more like Doomsday than a time for celebration. Treasury Secretary Timothy Geithner announced Wednesday that the United States will reach its $16.4 trillion debt limit on Dec. 31, earlier than anticipated.

While the Treasury Department will undertake "extraordinary measures" to avoid default, he said
in a letter to lawmakers, the stalemate over how to avoid going over the looming fiscal cliff makes it difficult to predict how long such actions will be effective.

"Given the significant uncertainty that now exists with regard to unresolved tax and spending policies for 2013, it is not possible to predict the effective duration of these measures," Geithner wrote.

In 2011, the nation came very close to defaulting on its debt, thanks to a standoff between the White House and congressional Republicans. Congress voted at the 11th hour to raise the credit limit, but the country's AAA credit rating was downgraded and stock markets were negatively affected.

Republican leaders have sought to tie raising the limit to an equivalent amount in spending cuts in a fiscal cliff deal, a proposal that President Obama has rejected.

"If Congress in any way suggests that they're going to tie negotiations to debt ceiling votes and take us to the brink of default once again as part of a budget negotiation," Obama told business leaders earlier this month, "I will not play that game."

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