In February 2013, President Obama signed legislation suspending the $16.4 trillion debt limit through May 18 (next Saturday). Fortunately, the government will be able to keep buying its bill at least until September because of a significant improvement in public finances. The fact is that an improving economy has swelled tax revenue and budget cuts (fiscal cliff on January 1, sequestration on March 1) have limited outlays.
As an illustration, on May 10, the US Treasury posted its widest budget surplus in five years in April. The surplus for the month, when tax payments are due, increased to $112.9 billion, 91% higher compared to the same month a year earlier. Through the first seven month of the 2013 fiscal year, the deficit is $488 billion, 32% lower than the same period last year. The fact is that since October, US employers has added 1.4 million workers boosting government receipts.
This improvement has eased pressure on lawmakers to lift the nation’s debt ceiling while Fannie Mae, the mortgage-financier seized by US regulators in 2008, said on May 9, it will pay the Treasury $59.4 billion by the end of June after reporting a record quarterly profit driven by rising home prices and declining delinquencies.
As a consequence, US Treasury Secretary Jack Lew told CNBC on May 10 that the one-time payment of Fannie Mae pushes back the debt ceiling deadline effectively fom May 19 “until at least Labor Day”, which falls on September 2. Note that on May 9, the Bipartisan Policy Center estimated that the debt ceiling could be pushed out even further, until sometime in October.
In these conditions,we expect that critical debates between Democrates and Republicans wouls start happening in July (like in 2011 when US where downgraded by S&P) before the August Congress recess.
To conclude, the significant improvment in US public finances in the 2013 fiscal year should lead to a lower than expected deficit around 4.5% of GDP. Besides, if the economy remains supported by the residential real estate in the next two years, the deficit could be less than 3% of GDP in 2015.