The debt ceiling strikes back: Scenarios for the upcoming ceiling breach

With just over a month before the fiscal cliff is set to potentially deal a fatal blow to the U.S. economic recovery, another major problem is looming on the fiscal horizon: the debt ceiling. Those who followed last year's deficit-reduction debacle that resulted in the Budget Control Act, sequestration and this year's standoff should recall that our current problems were the byproduct of the roughly $2.5 trillion debt ceiling increase.

While many thought that the huge amount of borrowing authority would fund the U.S. government until the spring of 2013, it seems that the Treasury Department could run out as soon as February. This unfortunate fact means that, in the event that Congressional Republicans and President Barack Obama don't reach a deal until the eleventh hour in December, the debt ceiling could become yet another sticking point during negotiations. But how will that particular situation play out?

Bill Buckler, who operates the economics newsletter The Privateer, wondered aloud in regards to this question in a recent article. He proposed four scenarios under which the talks could produce a debt ceiling resolution, some of which would immediately be branded as controversial if announced.

His first hypothesis involves the abolishment of the debt ceiling through a Congressional law, which would effectively raise the borrowing limit to infinity. While this would offer some relief to the U.S. government's concern about the now-annual debt increases, Buckler argues that this might cause international investors to question the integrity of American government debt. Similarly, U.S. leaders might decide to legislate a significant jump in the debt ceiling, providing years of borrowing allowance.

Another potential outcome would be a boost by presidential decree, which could be justified based on a particular reading of the Fourteenth Amendment. According to Buckler, the wording that U.S. debt "shall not be questioned" effectively authorizes President Obama to step in if the risk of default becomes apparent. Lastly, Congressional officials could simply choose to follow precedent and grant the government a one-year extension, all but promising a return to acrimonious negotiations.

Regardless of the outcome, it's vital for American investors to prepare for the worst-case economic scenarios. has a great selection of wealth preservation methods to choose from. Those interested should visit today and get their own "Free Game Plan Report."