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(Reuters) - The U.S. Treasury may soon begin taking extraordinary steps to delay the date the United States will reach the statutory $16.4 trillion limit on its debt.
Republicans want to use the need to raise the nation's borrowing authority as leverage in talks over averting the so-called fiscal cliff. The White House is insisting any budget deal include an increase in the debt ceiling.
Wrangling over the debt limit in 2011 led Standard & Poor's to strip the United States of its prized AAA credit rating. It also cost taxpayers $1.2 billion by pushing Treasury's borrowing costs higher, according to a report from the Government Accountability Office in July.
Following are some of the measures the Treasury has employed in the past and will likely use this time around as well to push back the date when the current debt limit becomes binding. Analysts say they could delay the day of reckoning from the last week of December to sometime in February.
The Treasury can suspend sales of State and Local Government Series securities - known as "slugs" - which are special low-interest Treasury securities offered to state and local governments to temporarily invest proceeds from municipal bond sales. Slugs, which count against the debt limit, have been suspended several times over the last 20 years to avoid hitting the debt ceiling. This is likely the first step the Treasury would take, and some analysts think it could happen as early as this week.
The Treasury may suspend investments in the Civil Service Retirement and Disability Fund, a government employee pension fund, and redeem certain investments.
Treasury can suspend the reinvestments in another federal employee pension fund known as the G-Fund. Normally the money market-like fund reinvests its entire balance daily into special-issue Treasury securities that count against the debt limit. Halting reinvestments would instantly claw back billions in borrowing capacity, but the Treasury must make the fund whole any lost earnings once the debt limit impasse ends.
The Treasury could dip into this seldom-used $55 billion fund earmarked to stabilize currency rates and access the dollar balance - currently about $23 billion - to avoid debt issuance. Created during the Great Depression of the 1930s, the fund was last used as a backstop to guarantee money market mutual funds during the financial crisis from September 2008 to September 2009. The Treasury would not have to restore lost interest earnings to the fund.
The Treasury could cut issuance of longer-term government debt and rely more heavily on short-term cash management bills to gain more day-to-day control over debt outstanding. Cash management bills are typically issued for days, compared to normal Treasury bill maturities of four weeks to one year. However, this is unlikely to buy much time and officials are wary of making any major shifts in the Treasury's debt issuance calendar, which could upset markets.
Treasury secretaries in the past have halted sales of U.S. savings bonds to the public during debt limit impasses, but current U.S. Treasury Secretary Timothy Geithner argued during the 2011 negotiations that this would be of little or no use. It would not free up borrowing authority and it would only prevent small amounts of new debt from being issued.
The Federal Financing Bank can issue up to $15 billion in debt on behalf of other government agencies that is not subject to the debt limit. So the Treasury could exchange FFB debt for other debt to reduce the total amount subject to the limit. However, the Treasury has said that this measure is also of little use because of the very small amounts of obligations available for exchange.
Reporting by Reuters Washington Economics Team; Editing by James Dalgleish