New debt ceiling debacle unfolding

Amazing find by Matt Franko (blog contributor here) that shows we are in for another debt ceiling train wreck, perhaps worse than the last.

A clause in the Aug 2 agreement stipulates how the remaining $900 bln (of the initial, $1.3 trillion increase) would be applied:

Sec. 3101A. Presidential modification of the debt ceiling (a) In General- (1) $900 BILLION- (A) CERTIFICATION- If, not later than December 31, 2011, the President submits a written certification to Congress that the President has determined that the debt subject to limit is within $100,000,000,000 of the limit in section 3101(b) and that further borrowing is required to meet existing commitments, the Secretary of the Treasury may exercise authority to borrow an additional $900,000,000,000, subject to the enactment of a joint resolution of disapproval enacted pursuant to this section. Upon submission of such certification, the limit on debt provided in section 3101(b) (referred to in this section as the ‘debt limit’) is increased by $400,000,000,000.

We are already up against the hard ceiling right now. So the Treasury is already operating by prioritizing payments like it did during the mid-May thru July period.

In order to get the next tranche of the $900 bln the president MUST SUBMIT A LETTER TO CONGRESS ASKING THAT IT BE DONE.

He hasn't done that yet.

Will he do it? Probably not right away. He'll let Geithner make payments as he can and keep this whole issue under the radar. What this will likely mean is another sharp contraction in economic activity as some accounts don't get paid or, get paid more slowly.

The economic data is going to look TERRIBLE by October, November.

Dr. Housing Bubble — Are We Setting Up for a Double Dip?

The U.S. economy is facing some serious challenges ahead. Looking at the current economic climate it feels eerily similar to the 1937-38 recession that occurred during the Great Depression. Some think that the Great Depression occurred overnight on a gloomy day in October of 1929 but we had a decade long build up of rampant speculation and bad investments that led up to the crash. The bottom hit in 1932 and 1933 with unemployment soaring to 25 percent. Yet the story never ended on that date. Throughout theGreat Depression even with massive government spending the unemployment rate remained above 15 percent for all of the 1930s. Without a doubt the early success that occurred for the government after 1933 was largely based on government spending. However government spending back then was largely focused on the working class while today most of the stimulus has been shoveled to the financial industry. It is helpful to look at history as a guide since we are facing many similar issues today even though things seem to be stable for the moment.

This is part 30 in our Lessons from the Great Depression series:

Read the rest at Economic déjà vu from the 1937-38 recession: Lessons from the Great Depression part 30. With financial bailouts and government spending pulling back are we setup for a double-dip?