U.S. Pushes Back Day of Reckoning on Debt Limit
The Treasury on Monday pushed back the date when it expects the nation will run out of options for avoiding a default on its obligations by three weeks, buying more time to strike a budget deal with Congress.
Treasury Secretary Timothy Geithner said stronger-than-expected spring tax receipts coupled with emergency steps to preserve borrowing capacity will allow the government to continue issuing debt under the $14.3 trillion legal limit until August 2.
Geithner had previously estimated that all room to borrow would be exhausted by July 8. The new estimate provides more breathing room for the Obama administration to negotiate an increase with Republican lawmakers who want to tie the needed legislation to spending cuts.
The Treasury cut its borrowing estimates for the April-June quarter by more than half, to $142 billion, citing higher receipts and lower outlays.
Nonetheless, Geithner said in a letter to congressional leaders that on Friday the Treasury will halt sales of State and Local Government Series securities, known as slugs, to help avoid the debt limit. He said other extraordinary steps to avoid default would follow.
"I caution strongly against delaying action" on debt ceiling legislation, Geithner wrote, reiterating his warning that a default on U.S. debt triggered by a budget policy stalemate would have dire consequences for the economy.
Republicans and some Democrat lawmakers have said they will not raise the debt ceiling without serious reforms to slash trillion-dollar U.S. deficits forecast for the next few years.
Suspending the slugs issuance will allow Treasury to gain more control over its borrowing. The securities are issued to state and local governments on demand as a vehicle for them to invest their municipal bond proceeds.
Treasury has suspended these securities six times in the past two decades. the latest suspension was in September 2007.
A Treasury official said the move would complicate bond issues for state and local governments because they would have to find alternatives to the yield-restricted slugs.
"It's a headache," the official, who requested anonymity, added.
The Treasury reiterated that it expects to reach the debt limit on May 16, after a round of bond and note auctions scheduled for next week. Geithner said he will take steps to access funds in two federal pension programs on that date to buy more borrowing room. The Treasury also may decide to access the seldom-used Exchange Stabilization Fund, a Depression-era account set up to stabilize currencies.
Treasury will announce its quarterly debt refunding plans on Wednesday. Analysts anticipate that Treasury will issue $72 billion worth of three-year, 10-year and 30-year debt in auctions on May 10, 11 and 12.
The Treasury said it expects to borrow $405 billion in the July-September quarter, assuming a debt limit increase.