The U.S. has started using final extraordinary measures to avoid a breach of the nation’s debt limit, Treasury Secretary Jacob J. Lew said as he pressed Congress to increase borrowing authority “immediately.”
Lew, in a letter addressed to House Speaker John Boehner dated yesterday, repeated that the measures will be exhausted no later than Oct. 17.
When that happens, “we will be left to meet our country’s commitments at that time with only approximately $30 billion,” he said, “far short of net expenditures on certain days, which can be as high as $60 billion.”
Lew and President Barack Obama have said they won’t negotiate on the limit, which is tied to obligations the U.S. has already incurred. Boehner, an Ohio Republican, has issued a list of demands before he’ll support raising the ceiling. His conditions include approval of TransCanada Corp.’s Keystone XL pipeline, major revisions to the tax code and a one-year delay of the insurance mandate in the Obama health-care law.
Pacific Investment Management Co.’s Bill Gross said the U.S. will avoid a “catastrophic” default on Treasury securities.
“The U.S. Treasury is the center of the global financial complex,” Gross, manager of the world’s biggest bond fund, said during a Bloomberg Television interview with Trish Regan and Adam Johnson. A default would be “unimaginable,” as it would have “catastrophic” consequences on U.S. borrowing costs, and would trigger a “complex series of events worldwide” that would ripple through global financial markets, he said.
Benchmark 10-year yields fell two basis points, or 0.02 percentage point, to 2.63 percent at 9:16 a.m. London time, according to Bloomberg Bond Trader prices. The 2.5 percent note due in August 2023 rose 7/32, or $2.19 per $1,000 face amount, to 98 29/32. The yield dropped to 2.59 percent on Sept. 30, the lowest level since Aug. 12.
The U.S. budget deficit in June was 4.3 percent of gross domestic product, down from 10.1 percent in February 2010 and the narrowest since November 2008, when Barack Obama was elected to his first term, according to data compiled by Bloomberg from the Treasury Department and the Bureau of Economic Analysis.
For the first 11 months of the fiscal year 2013, which ended Sept. 30, the deficit was $755.3 billion, the narrowest for that period in five years, the Treasury said on Sept. 12.
The U.S. government is already limited in action after Republicans and Democrats in Congress failed to agree on funding for the new fiscal year that began yesterday. That led to a partial shutdown of the government at midnight, forcing about 800,000 federal workers off the job. The shutdown could cost the economy as much as $10 billion a week, the White House said on its website.
The Standard & Poor’s 500 Index rose 0.8 percent to 1,695.00 in New York yesterday as investors speculated that the economic effects of the first partial government shutdown in 17 years would be limited.
The so-called extraordinary measures used by the Treasury are accounting maneuvers allowing the government to avoid breaching the $16.7 trillion debt ceiling. They include allowing the government to enter into a debt swap with the Federal Financing Bank and the Civil Service Retirement and Disability Fund.