U.S. Treasury Secretary Jacob J. Lew stepped up pressure on Congress to avert a potential default, telling lawmakers in a letter that measures to avoid breaching the debt ceiling will be exhausted on Oct. 17.
“We estimate that, at that point, Treasury would have only approximately $30 billion to meet our country’s commitments,” Lew said in a letter today to U.S. House Speaker John Boehner. That projection was revised down from last month, when Lew told Congress he expected the Treasury Department would have about $50 billion left to fund the government in mid-October.
Lew’s letter marks the first time he has set a specific deadline and gives lawmakers a target for raising the $16.7 trillion debt limit. Lew and President Barack Obama have said they won’t negotiate on the limit, which is tied to payments and bills the U.S. has already agreed to make. Republicans in Congress want spending cuts to be part of the debt-limit debate.
The $30 billion “would be far short of net expenditures on certain days, which can be as high as $60 billion,” Lew said in the letter. “If we have insufficient cash on hand, it would be impossible for the United States of America to meet all of its obligations for the first time in our history.”
The $30 billion “is enough to cover the Treasury’s cash needs for a couple of weeks, give or take a few days,” said Lou Crandall, chief economist at Wrightson ICAP LLC in Jersey City, New Jersey.
The Congressional Budget Office said today the Treasury will probably exhaust its cash balance between Oct. 22 and the end of the month.
Lew’s deadline is different from the dates provided by his predecessor, Timothy F. Geithner, during debt-limit talks in 2011, because Lew is giving himself a cushion of $30 billion, Crandall said.
For example, on April 4, 2011, Geithner sent Congress a letter saying extraordinary measures could give the Treasury “headroom” until about July 8. On May 2, Geithner said that because of “stronger than expected tax receipts,” the measures could extend borrowing authority until Aug. 2.
Lew’s Oct. 17 deadline “is the date on which Treasury runs out of the ability to raise new money, but he is not attempting to pick the subsequent date on which the Treasury will run out of cash,” Crandall said. “You can make objective forecasts about the former, while the latter is much more uncertain. He is telling us when we go to Code Red as opposed to predicting the date of fiscal Armageddon.”
The so-called extraordinary measures to avoid hitting the debt ceiling are accounting maneuvers such as allowing the government to redeem existing Treasury securities held by the Civil Service Retirement and Disability Fund. The department also suspends investments to the Postal Service Retiree health Benefits Fund.
Treasury 10-year note yields traded at almost the lowest level in six weeks amid speculation budget talks risk a government shutdown.
The benchmark U.S. 10-year yield declined four basis points, or 0.04 percentage point, to 2.61 percent at 3:04 p.m. New York time, according to Bloomberg Bond Trader prices. The Standard & Poor’s 500 Index fell 0.2 percent to 1,694.89.
Lew reiterated his position that making payments on some obligations and not others is unworkable. “Any plan to prioritize some payments over others is simply default by another name,” he said.
The Republican-led House could vote as soon as Sept. 27 on a bill to raise the debt cap until Dec. 31, 2014. The bill, expected to save at least $256 billion, would delay Obama’s health-care law for a year and include other Republican priorities, such as approval of the Keystone XL pipeline, increasing means testing for Medicare and cutting government regulations. The administration has said it will not approve legislation that delays the health-care law.
“This is another reminder that we need to work together -- soon -- on a bill that raises the debt limit and deals with causes of the debt by cutting Washington spending and increasing economic growth,” Michael Steel, Boehner’s spokesman, said in an e-mailed statement. “And it should remind President Obama that refusing to negotiate with Congress on solutions just isn’t an option.”
Rory Cooper, a spokesman for House Majority Leader Eric Cantor, a Virginia Republican, said “we always knew that this date would be approaching soon, which is why the House has been acting swiftly to craft legislation that would control spending and spur economic growth.”
Obama and Senate Democrats “must stop ignoring this issue and threatening our nation with default,” Cooper said in a statement.
The debt-limit bill would encourage offshore energy production, energy production on federal lands and block Environmental Protection Agency greenhouse-gas and coal-ash regulations.
Lew, speaking yesterday at the Bloomberg Markets 50 Summit in New York, said investor confidence that a deal can be struck to raise the debt limit is “a bit greater than it should be.”
Omair Sharif, a U.S. economist at RBS Securities in Stamford, Connecticut, said today he isn’t surprised Lew gave a precise date because “Treasury secretaries in the past have also given dates to inform Congress of when they will exhaust the extraordinary measures and risk default.”
“We’ve been here before,” Sharif said. “We have to get through the political theatrics.”