Costs resulting from the debt-ceiling debate might already be harming the US economy and affecting the financial markets. We have seen this before: in 2011, the raising of the debt limit was blocked by much debate. This resulted in the first downgrade in the US's credit rating, a substantial stock-market decline and an increase in the costs of borrowing.
The 2011 debt-ceiling crisis resulted in the Budget Control Act of 2011 – which created the fiscal cliff – where the US Congress and White House raised the debt limit to $16.7 trillion. This new debt ceiling was already reached in May 2013 but by using "extraordinary measures" the Treasury has been able to continue borrowing while staying below the limit. However, this is expected to be exhausted no later than October 17, according to Treasury secretary Jack Lew.
Here's a bit of background on the debt ceiling and commentary on some of the costs already incurred:
2013:
Government bonds: Short-term treasuries hit by shutdown chaos
November 2013
Washington politics puts dollar in peril
October 2013 euromoney.com
Currency investors should avoid complacency over US debt ceiling
September 2013 euromoney.com
President Obama places his cards on the table
April 2013 euromoney.com
US equities: Timing a turn in cyclicals vs defensives
April 2013 euromoney.com
Call for dollar bull-run premature
February 2013 euromoney.com
Against the tide: Climbing the fiscal cliff
Euromoney February 2013
Latin America: Concerns about the US hang over fresh DCM
Euromoney February 2013
Currency managers rejoice as foreign exchange correlation hits lowest level since Lehman collapse
January 2013 euromoney.com
Fiscal cliff deal paves way for dollar slide
January 2013 euromoney.com
January 2013 Insight
Will the UK, France and US lose their remaining triple-A ratings in 2013?
January 2013 euromoney.com
Against the tide: A year of economic porridge
Euromoney December 2012
USD and the election: It's the fiscal cliff, stupid
November 2012
Eurozone fears fade as US fiscal cliff takes centre stage
September 2012 euromoney.com
2011:
SEC infighting nobbles money market reform
Euromoney September 2012
Beware the summer lull; no time to be complacent in FX
August 2012 euromoney.com
IMM: Flight to USD reaches record highs
October 2011
Euromoney September 2011
Bond Outlook by bridport & cie, August 3 2011
August 2011 Bridport bond outlook
US debt ceiling: Investors don't believe the hype
Euromoney August 2011
US debt deal won't save dollar, says JPMorgan
August 2011
US debt default would have broad, long-term impact
Euromoney August 2011
US dollar losing safe haven status, may spur intervention, says Nomura
July 2011
Aussie hits record high on US dollar recycling
July 2011
Euro breaks higher as US debt ceiling talks waver
July 2011
EURGBP in limbo; profit with short-volatility trade, says JPMorgan
July 2011
US debt ceiling default threat leaves bond investors unmoved
July 2011 euromoney.com
Foreign investors pull back from US dollar on debt ceiling discord
July 2011 euromoney.com