Treasury gears up to buy time under reimposed debt cap

WASHINGTON Fri May 17, 2013 5:05pm EDT

The National Debt Clock, a billboard-style sign, is seen near Times Square in New York October 9, 2008. REUTERS/Mike Segar

The National Debt Clock, a billboard-style sign, is seen near Times Square in New York October 9, 2008.

Credit: Reuters/Mike Segar

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WASHINGTON (Reuters) - The Obama administration on Friday notified Congress it was prepared to take a series of steps to free up about $260 billion so it can keep paying the nation's bills once a temporary suspension in the government's debt ceiling lapses this weekend.

To preserve its borrowing capacity, the Treasury Department said it would employ the same measures it has used previously when Congress had failed to raise the limit, including halting investments in two different federal employee pension funds.

In a letter to congressional leaders, Treasury Secretary Jack Lew said the extraordinary actions should allow the government to meet all its obligations at least through the September 2 Labor Day holiday.

If the debt ceiling is not raised by then, he said the nation would run the risk of an economically damaging default.

"Congress should act sooner rather than later to protect America's good credit and avoid the potentially catastrophic consequences of failing to act until it is too late," Lew said.

Republicans in Congress want to use the need to raise the borrowing cap as leverage to seek fresh budget cuts and tax code changes. President Barack Obama has said any deal to cut the budget deficit would need to include additional revenues, an idea that is anathema to many conservatives.

In 2011, the Obama administration and Congress battled for months before raising the debt ceiling to $16.4 trillion. The fight hurt consumer confidence, shook financial markets and cost the United States its top-tier credit rating.

Earlier this year, Congress decided to side step a messy fight and put in place legislation that suspended the limit.

When that suspension expires on Sunday, the new ceiling will be set at the existing level of the nation's debt, which is around $16.7 trillion.

It will also set the clock ticking toward another potential bitter showdown over the budget this summer.

"In order to avoid a repeat of the damaging brinkmanship that occurred in 2011, Congress should remove the threat of default by taking this action as soon as possible," Lew said.

The Treasury took the first step to free up borrowing authority this week with a decision to suspend sales of special Treasury securities that state and local governments use to temporarily invest proceeds from sales of municipal bonds.

In addition to that step, and the possibility of putting a temporary halt to pension fund investments, the Treasury said it could dip into a seldom-used fund it taps to intervene in currency markets.

It ruled out some other measures, including halting sales of savings bonds.

Normally, these measures would buy the Treasury about two months before it would run out of cash. But unexpectedly strong tax receipts and sizable bailout payments from mortgage finance firms Fannie Mae and Freddie Mac are giving the Treasury more time.

While Lew said the measures would buy time until at least early September, many private forecasters believe the drop-dead date will not be reached until October and the non-partisan Congressional Budget Office estimates it could be as late as November.

(Reporting by Margaret Chadbourn; Editing by Neil Stempleman and Tim Ahmann)

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Comments (5)
These politicians do NOT have what it takes to STOP SPENDING.
Ruining the country they are in. Inflated values are the ONLY way to pay off the debt. But I do NOT want to pay 100 bucks for a simple meal, and NOT paying 10 bucks for a gallon of gas. And that could be next year. They were told decades ago to get this fixed, and we are not even close to doing this.

May 17, 2013 2:06pm EDT  --  Report as abuse
Harry079 wrote:
“But unexpectedly strong tax receipts and sizable bailout payments from mortgage finance firms Fannie Mae and Freddie Mac are giving the Treasury more time.”

So in essence people making their house payments on time are going to help fund the government for the next four months?

Thanks to the Fed buying $40 billion a month in Mortgage Backed Securities Fannie and Freddie went from losing $170+ billion to turning huge profits that are going to the Treasury instead of repaying the rest of the bailout bill.

Nice trick!

May 17, 2013 8:26pm EDT  --  Report as abuse
OnTheGround wrote:
The Treasury continues to grapple with the national debt.
For those who are unaware, the Reagan administration quadrupled the national debt while double-talking ‘trickle-down economics.’ Nothing trickled down except debt.
The Bush/Cheney administration then doubled the national debt, propelling the country into the Great Recession. Forty percent of the economy became based on financial ‘services,’ including high-end gambling on derivatives. That was no way to run the country financially.
The Clinton administration had the first balanced budgets since the Eisenhower administration (Nixon’s balanced budget for one year was an accounting change). This was wrecked in eight short years.
Now we have a Treasurer who understands all of this, and who may be able to lower the cost of the service on these debts – piled on during the Reagan and Bush/Cheney administrations.
From a pragmatic point of view, this will take time.

May 18, 2013 11:31am EDT  --  Report as abuse
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