Congress eliminates debt ceiling with HR2775

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Intentionally or not, HR2775 passed late last night provides the US Treasury with the authority to ‘suspend’ the debt ceiling to avoid a default if the situation should arise.  This has been picked up by a small amount of journalists and market participants.  The NY Times notes:

Did Congress just accidentally kill the debt ceiling?

It could certainly look that way, given the legislative text. The “default prevention” section of the bill seems to imply that going forward, the president has the authority to increase the country’s debt burden unilaterally, and that Congress can only stop him by passing a bill. Given that the president could veto that bill, it would take a supermajority to stop him from raising the debt ceiling.

Some market participants have interpreted the law that way, and the provision has caused widespread confusion. “This amendment is a significant development for future debt ceiling negations as it will forever remove the uncertainties associated with prolonged and disruptive negotiations on this issue,” Millan L. Mulraine of TD Securities said in a note to clients. “By design, the amendment makes future debt limit increases automatic, removing the specter that this issue could again be used by a minority as a bargaining chip in the future.”

Also, it’s been picked up by Simon Black of Sovereign Man:

As part of the bargain codified in HR 2775 (which President Obama signed into law), the Treasury Department is authorized to SUSPEND the debt ceiling. In other words, for all intents and purposes, there is now NO LIMIT government borrowing.

This limitless borrowing authority will expire on February 7, 2014. But it sets the precedent that dismissing the debt ceiling is a perfectly viable course of action.

According to the interpretation by the NY Times:

If Congress implemented the McConnell rule permanently, it would defang the debt ceiling. But the bill only implements it temporarily. The Treasury Department would be able to issue as much debt as it needs to through Feb. 7. At that point, everything would revert to normal: The country would hit its ceiling. Treasury would employ “extraordinary measures” to keep paying its bills. Eventually, a cash crunch would set in.

..it’s only temporary.  But it could be extended.  Senators have admitted in the past they didn’t even read financial regulations.  Given these facts and the circumstances of the financial crisis and increasing QE (which is directly related to the debt ceiling), how is it possible to make a fair objective conclusion about the interpretation of HR2775, especially as it relates to the effective elimination of the debt ceiling?

Further Reading

http://www.nytimes.com/news/fiscal-crisis/2013/10/17/provision-temporarily-suspends-debt-ceiling/?_r=0

http://www.gop.gov/bill/113/1/hr2775-senateamendment