U.S. Treasury Secretary Timothy F. Geithner said he has taken actions to stave off the federal debt limit until Aug. 2, using accounting measures that involve two retirement funds.
Geithner wrote lawmakers today to say he has declared a “debt issuance suspension period,” a technical measure that allows him to free up borrowing room from the Civil Service Retirement and Disability Fund and the Government Securities Investment Fund. The steps, widely expected as Republicans and Democrats argue over when and how to raise the $14.3 trillion debt limit, won’t affect retirees or government operations.
President Barack Obama said failure to increase the debt limit might disrupt the global financial system and plunge the nation into another recession, Obama said on “Face the Nation” in a segment taped May 11 in Washington for broadcast yesterday. Republicans are seeking spending cuts and no tax increases in exchange for supporting a higher debt ceiling.
Geithner’s letter today indicated he has not changed his assessment of when his department will exhaust its set of emergency measures for preserving borrowing room.
“I have determined that a ‘debt issuance suspension period’ will begin today, May 16, 2011, and last until August 2, 2011, when the Department of the Treasury predicts that the borrowing authority of the United States will be exhausted,” Geithner said in the letter to Senate Majority Leader Harry Reid and other lawmakers.
It would be “seriously problematic” if Congress does not act by Aug. 2 and the Treasury has to pick and choose which of its payments it is able to meet, said Lou Crandall, chief economist at Wrightson ICAP LLC in Jersey City, New Jersey. He said the Treasury would have a net cash-flow deficit of about $230 billion to $300 billion between Aug. 2 and Sept. 30.
“Short of embracing something like a bankruptcy-style reorganization plan -- or beginning to shut down government operations preemptively weeks in advance -- we’re not sure how the Treasury could scale its outlays back to the current level of revenue,” Crandall said in a note to clients today.
Interest payments would be legally protected, and benefit payments backed by trust funds would “probably” go out on schedule, he said. Other payments might need to be put on hold, including civilian salaries and student loan disbursements.
“The federal government might be able to withhold Medicaid reimbursements from states, but that would risk bringing Meredith Whitney’s muni-default forecast one step closer to reality,” Crandall said in reference to the analyst who predicted there would be 50 to 100 “sizable” municipal-bond defaults. “Food-stamp issuance would have to be shut down weeks in advance to allow time for the existing body of vouchers to work their way through the system.”
House Speaker John Boehner said “it’s clear” the U.S. must raise its debt limit.
“At some point it’s clear to me that we have to increase the debt ceiling,” Boehner, an Ohio Republican, said yesterday on CBS’s “Face the Nation.” Senate Minority Leader Mitch McConnell, a Kentucky Republican, appearing yesterday on CNN’s “State of the Union,” said he wants the extension of the debt limit coupled with broad fiscal reforms.
The U.S. government can’t sell assets to stay below the debt limit once it has exhausted its borrowing room, Treasury assistant secretary Mary Miller said on May 6.
Asset sales are a “misguided notion” that won’t postpone the need to increase the limit by any “meaningful” amount of time, Miller said on the Treasury’s blog. It would also hurt the economy and threaten international financial stability, she said.
“A ‘fire sale’ of financial assets would be damaging to the economy, taxpayers, and financial markets,” Miller said. “It would harm the interests of taxpayers, and would undermine confidence in the United States.”