The Treasury Department announced further steps to keep funding the government without going over the nation’s debt limit, amid a stalemate between Congress and the Obama administration on approving an increase in the ceiling.
The U.S. declared a “debt-issuance suspension period” under the statute governing the Civil Service Retirement and Disability Fund. That allows the U.S. to redeem existing Treasury securities held by the fund as investments, and suspend new investment. Each month a debt-issuance suspension period lasts frees up about $6.4 billion, according to the Treasury.
During this period, civil service benefit payments will continue to be paid and won’t be affected by the action. However, once all of the so-called extraordinary measures it has at its disposal to avoid breaching the limit have been exhausted, the U.S. government will be limited in its ability to make payments across the government, the Treasury says.
Treasury Secretary Jacob J. Lew made the announcement in a letter to lawmakers. The suspension period will be from May 20 to Aug. 2, he wrote. The Treasury also will suspend additional investments of amounts credited to Postal Service Retiree Health Benefits Fund, he wrote.
Lew in a May 17 letter asked Congress to take action as soon as possible to raise the debt limit and “remove the threat of default.”
Standard & Poor’s downgraded the U.S. credit rating for the first time in August 2011, citing the partisan wrangling over the debt limit.
U.S. policy makers must address debt loads projected to rise later this decade to avoid a 2013 downgrade, even as the latest budget projections are “credit positive,” according to Moody’s Investors Service in a May 20 report.
The Treasury said May 15 it will suspend sales of State and Local Government Series non-marketable securities until further notice.
The securities are sold to states and municipalities so they can comply with federal tax laws and arbitrage rules when they have money to invest from their issuance of tax-exempt bonds. The move was the first of several measures the Treasury can take to comply with the debt ceiling as the Obama administration and Congress negotiate a longer-term solution.
Lew said May 10 a one-time payment from Fannie Mae confirms that the nation’s debt ceiling won’t be reached until September. The mortgage financier seized by U.S. regulators in 2008 said it will pay the Treasury $59.4 billion after reporting a record quarterly profit driven by rising home prices and declining delinquencies.
Earlier this year, Congress voted to suspend the limit until mid-May to avoid the risk of default and focused instead on automatic spending cuts, known as sequestration, which it also failed to avert.
The U.S. budget deficit will shrink this year to $642 billion, the smallest shortfall in five years, a Congressional Budget Office report said last week. Last year’s shortfall was $1.1 trillion.