Is Another Fiscal Showdown Approaching in 2014 Over the Debt Ceiling?

fisalAs 2013 draws to a close in only eight days with today’s landscape in Washington looking more subdued compared to a year ago with the Federal Reserve having announced their plans to taper their quantitative easing program and a modest 2 year budget agreement was reached on Capitol Hill, investors are now beginning to set their sights on 2014, anticipating whether the economy will sail full speed ahead or get lost out in sea in yet another fiscal battle over raising the U.S. national debt limit.

With U.S. stock indexes sitting at record highs after rising over 20 percent in 2013 with the unemployment rate sitting at 7 percent and sequestration cuts delayed for another two years due to the 2 year budget agreement, few analysts are forecasting the same type of massive 20 percent stock run that carried stocks to new heights in 2013, even with solid growth projections arriving for the economy.

Christianne Lagarde, Managing Director of the International Monetary Fund, said on Sunday’s Meet the Press that she believes that the economy has improved and good signs remain for the economic outlook in 2014.

“We see a lot more certainty for 2014. There has been good action taken by Congress to eliminate the fear about the budget and to reduce the sequestration” Largarde said.

“We see the Fed having taken some very well communicated action concerning the tapering of a program and those are good signs” Lagarde added.

U.S. Fiscal Policy Concerns

U.S. politicians are in recess for the rest of 2013 after achieving some limited success approving a short-term two year budget bill that increases federal spending and reduces the sting of “across the board” austerity sequester cuts that was expected to cause some fiscal drag for the U.S. economy.

But the bipartisan budget bill only reduces the U.S. national deficit of $ 17. 265 trillion by a mere $ 23 billion over 10 years, a drop in the bucket.

Many deficit hawks in the Republican party are unhappy with final outcome of the 2 year budget agreement that does little to enact the type of fiscal reforms that are needed to significantly lower the U.S. deficit.

In October President Obama approved a temporary delay until February 7, 2014 of the raising of the U.S. debt limit after it reached bipartisan support during the conclusion of the 16 day partial federal government shutdown.

President Obama said that he won’t negotiate over raising the nation’s borrowing authority.

On December 19th U.S. Treasury Secretary Jacob J. Lew wrote a letter to House Speaker John Boehner (R-Ohio) and the House of Representatives urging them to take prompt action to protect the full faith and credit of the United States by extending the nation’s borrowing authority.

Secretary Lew estimated that through the use of extraordinary measures, he would be able to extend the nation’s borrowing authority only until late February or early March 2014.

“We currently estimate that through the use of these measures, we would be able to extend the nation’s borrowing authority only until late February or early March 2014” Lew wrote.

Secretary Lew concluded his letter by asking Congress to raise the debt limit.

“I respectfully urge Congress to take action to raise the debt limit at the earliest possible moment and ideally well before February 7, 2014.”

Criticizing Ineffective Governing

Senator Tom Coburn (R-Oklahoma) spoke out about ineffective governing yesterday on NBC’s Meet the Press, claiming “the reason we are in trouble on deficits and debts is not because we didn’t agree but because we did.”

“My thoughts are the American people don’t believe we have a debt ceiling because we always increase it and they don’t believe we have the discipline in Washington” Colburn added.

“We agreed to spend $740 that we didn’t have last year” Coburn said.

“So we pass a bill that raises spending and raises taxes and denies what we promised the American people. And everybody says, ‘Oh my goodness, how great, you grew the government some more and you charge us more taxes and you didn’t fix any of the problems’ ” Coburn explained.

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