August 2, 2013 / 8:31 PM / in 4 years

Treasury extends suspension on issuing debt

WASHINGTON (Reuters) - The Treasury Department on Friday extended the period during which it will suspend investments in a government pension fund through October 11, as it continues to rely on cash management tools to stay under the nation’s borrowing limit.

The move allows Treasury to continue accounting maneuvers to pay the nation’s bills while staying under its $16.7 trillion debt limit.

The suspension applies to the Civil Service Retirement and Disability Fund, which should free up another $13 billion in headroom under the debt limit, a Treasury official said.

Some analysts have interpreted the debt issuance suspension date as a signal of how long the government can fund itself before running into the risk of default. But the Treasury official, speaking on condition of anonymity, said the October 11 date was not tied to when the United States would hit the debt limit.

U.S. Treasury Secretary Jack Lew has said the government can keep paying its bills at least until September 2, but declined to provide a more precise timeline due to uncertainty around government spending forecasts.

Many private analysts have said the Treasury is not likely to run out of options until sometime in October, while the non-partisan Congressional Budget Office said the government might not exhaust its emergency measures until November.

Congress reinstated a legal limit on the nation’s debt in mid-May, and Republicans have refused to raise it without fresh spending cuts. U.S. President Barack Obama, a Democrat, has sought to take a tough line on the issue, refusing to negotiate over the debt ceiling and saying the nation’s deficit has already fallen.

“Waiting until the last possible moment to act would risk financial market and economic damage that is completely avoidable and irresponsible to our investors and our country,” Lew said in a letter to Congressional leaders on Friday.

A showdown over the debt limit in 2011 sparked wild stock market swings and helped strip the United States of its top-tier AAA credit rating.

The previous debt issuance suspension period ended this Friday, the last day before Congress begins a month-long recess. October 11 is the last day Congress meets before a break around the U.S. Columbus Day holiday, Lew said in the letter.

Treasury has used several so-called extraordinary measures to stay under the limit, such as suspending sales of certain state securities.

It has not yet dipped into the exchange stabilization fund, which could free up another $23 billion. This seldom-used fund was earmarked to stabilize currency rates and Treasury can stop investing in the fund during a debt-limit impasse.

Reporting by Anna Yukhananov; Editing by Nick Zieminski

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