Treasury Losing Accounting Maneuvers Seen Benefiting Investors
Halting the U.S. Treasury Department’s so-called extraordinary measures to stay under the nation’s debt limit will give investors more clarity and Congress more control in fiscal fights, economists said.
The Treasury’s accounting maneuvers during debt-ceiling debates have become ordinary over the past two decades, used by administrations of both parties. A revised House proposal today would stop their use through April 15 even as lawmakers called off a vote tonight. The Obama administration opposes the suspension of the extraordinary measures.
Treasury Secretary Jacob J. Lew, who has employed them since May to keep paying federal bills without breaching the $16.7 trillion limit, has said he’ll exhaust his authority to stay under the cap by Oct. 17.
“It would be better for everybody if we had a debt ceiling and it was hard and fast, without extraordinary measures,” said Ward McCarthy, chief financial economist at Jefferies LLC in New York and a former economist at the Federal Reserve Bank of Richmond. “If we had that, there would be better clarity from the standpoint of the market.”
The Treasury has four main extraordinary measures. It can, as it did in May, suspend sales of its non-marketable state and local government securities, known as “slugs.” The program allows municipal governments with excess funds to invest in a special series of Treasury securities.
The Treasury can also declare a “debt issuance suspension period,” which allows it to suspend investment of new amounts and redeem some existing Treasury securities in the Civil Service Retirement and Disability Fund. According to the Treasury, this measure has been used in debt-limit impasses of 1995–1996, 2002, 2003, 2004, 2006, 2011 and 2012-2013.
A third measure the department is suspending daily reinvestment of Treasury securities held by the Government Securities Investment Fund of the Federal Employees’ Retirement System Thrift Savings Plan. That method has also been used several times since 1995, according to the Treasury.
Lew can also postpone daily reinvestment of Treasuries held by the Exchange Stabilization Fund, a pool of dollars, foreign currencies and special-drawing rights that held $22.7 billion in U.S. government securities as of Aug. 31.
President Barack Obama hasn’t commented publicly on specific provisions of the proposals that been circulating in Congress. An administration official, who asked for anonymity to discuss internal deliberations, said one of the proposals that raised concern in the White House was eliminating the extraordinary measures. Obama raised the issue in a telephone call with Senate Minority Leader Mitch McConnell on Oct. 14.
Lew would likely prefer that the measures be maintained, according to Stephen Myrow, managing director at Washington-based ACG Analytics Inc. and a Treasury official during the George W. Bush administration. “Treasury doesn’t like flexibility being taken away from them,” Myrow said.
Treasury spokeswoman Natalie Wyeth Earnest declined to comment.
Since 1960, Congress has acted 78 times -- 49 under Republican presidents and 29 during Democratic administrations - - to raise, temporarily extend or revise the definition of the debt limit, according to the Treasury.
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