* Debt limit reached, but no immediate impact
* Focuses attention on country's fiscal problems
* Bond markets expect default not likely
By Andy Sullivan
WASHINGTON, May 15 The United States will reach
the limits of its borrowing authority on Monday, but don't
expect to hear alarm bells in Washington or on Wall Street.
Rather, that ringing sound you hear is the opening bell in
a fight that's likely to last a full 15 rounds.
It's a moment the Obama administration has warned about for
months. Without congressional action, the Treasury Department
will be shut out from the bond markets and the country could
eventually default on its obligations, an event that would roil
markets and economies across the globe.
There will be little immediate financial impact when the
United States reaches its existing $14.294 trillion debt
ceiling, as the Treasury Department says it can stave off a
default until early August. Observers don't expect Congress to
swing into action until the last possible minute.
Bond markets have remained placid as traders calculate that
despite the theatrics in Washington, the chances of default are
"I don't think this is a big story yet," said Dan Ripp, an
analyst with Bradley Woods, a securities firm in New York.
For full coverage of U.S. debt ceiling see [ID:nUSBUDGET]
Debt limit debate likely to stretch to July [ID:nN09265886]
FACTBOX-US Treasury's debt limit delay tools[ID:nN09266402]
Q+A-State of play in debt and deficit talks [ID:nN09265882]
U.S public debt, debt ceiling r.reuters.com/vyb59r
Budget experts say the debt limit provides an opportunity
to address the country's long-term fiscal problems before it
courts a Greek-style debt crisis.
"Nothing blows up next week, but the clock is ticking now.
We need to get on top of this problem," said Alice Rivlin of
the Brookings Institution.
Unlike nearly every other developed country, the United
States can't increase its borrowing authority without
This is a mixed blessing for Congress: The public is
overwhelmingly opposed to a debt-limit increase, and the vote
to raise the limit is always politically painful. But it gives
lawmakers further leverage over federal spending.
"The beauty of the debt ceiling issue is it gets results,"
Senate Republican Leader Mitch McConnell said on Thursday.
Lawmakers from both parties say they won't back an increase
without steps to ensure that debt remains manageable.
Urged on by the conservative Tea Party activists who handed
them control of the House of Representatives last fall,
Republicans are calling for trillions of dollars in spending
cuts. Democrats say tax hikes need to be part of the solution.
As the two sides maneuver for advantage, the Treasury
Department will have to dip into other pots of money, such as
government employee pension funds, to pay the bills.
The agency has plenty of experience in using what it calls
"extraordinary measures" to keep the wolf from the door.
According to the Congressional Research Service, Treasury has
had to use alternate sources of funding six times since 1985.
Treasury will run out of options eventually, as the
government currently spends each month about $125 billion more
than it takes in.
According to CRS, the government would have to boost tax
revenues by two-thirds or eliminate spending on the military,
scientific research and all other discretionary programs to
avoid a default.
The other alternative -- refusing repayment of its bonds --
would likely destroy the country's sterling credit reputation,
push stocks down by at least 6 percent, for a start, and
possibly lead to another recession, according to an analysis by
the centrist think tank Third Way.
TAKING A HARD LOOK
The debt ceiling debate is forcing lawmakers to take a hard
look at the country's fiscal path, which has changed
dramatically for the worse over the past decade.
In January 2001, the non-partisan Congressional Budget
Office projected the country would run a surplus of $5.6
trillion over the coming 10 years.
Instead, debt more than doubled as President George W. Bush
cut taxes, waged two wars and expanded health benefits. The
2008-2009 recession blew a deeper hole in the budget, pushing
annual deficits to their highest levels relative to the economy
since World War Two.
By the end of the decade, CBO's projected surplus was
nowhere to be found and the country had instead racked up an
additional $6.2 trillion in cumulative deficits.
Experts say the United States will need to trim deficits by
roughly $4 trillion over the coming 10 years to keep debt from
rising to dangerous levels relative to the economy.
Democrats and Republicans agree on some programs, like crop
subsidies, which should come under the knife, but those are
dwarfed in dollar terms by the areas in which the two sides
disagree, such as healthcare programs and taxes.
As the 2012 election cycle gets underway lawmakers will
have more incentive to dial up the rhetoric.
Markets may impose a discipline of their own. Standard &
Poor's warned last month that it might downgrade the United
States' top-notch debt rating if Washington doesn't tackle its
fiscal situation, and bond yields could rise if a substantial
deal does not emerge from the debt ceiling talks.
"That's the kind of thing that could emerge over the long
term," Ripp said.
(Editing by Philip Barbara)