WSJ: Treasury Plans ‘Extraordinary’ Measures as US Nears Debt Limit

Wednesday, 12 Dec 2012 08:51 AM

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The United States isn’t only pushing full-steam ahead toward a fiscal cliff, but the country is also close to hitting its debt ceiling just like it was in 2011, and the Treasury Department is busy prepping “extraordinary” measures to stave off a default, The Wall Street Journal reported.

As of Friday, the United States was running about $67 billion under its $16.394 trillion debt ceiling, The Journal reported, and at the rate the country borrows and spends, the government will hit the limit shortly.

Congress must lift the debt ceiling, which won't be easy considering that in 2011 the country lost its coveted triple-A credit rating when political brinkmanship prevented lawmakers from raising the borrowing limit until the very last minute, spooking ratings agencies.

Editor's Note: The ‘Unthinkable’ Could Happen — Wall Street Journal. Prepare for Meltdown

Standard & Poor's cut the country's rating to AA-plus from AAA.

Congress and the White House are busying negotiating ways to avoid the fiscal cliff, a combination of tax hikes and spending cuts due to take effect at the end of this year.

Failure to avert the cliff could tip the country into a recession next year, and raising the debt ceiling would likely become part of the negotiations that Republicans will use as a bargaining chip in exchange for concessions on tax and spending reforms from the White House.

The Treasury Department, meanwhile, is quietly considering steps to delay default, which could include putting off sales of State and Local Government Series securities, often known as Slugs, which are low-interest Treasury securities that state and local governments use to invest proceeds from municipal bond sales.

The Treasury Department could also hold off on investing in Civil Service Retirement and Disability Fund and other programs, dip into rainy day funds or rely more on short-term financial instruments rather than issuing debt, such as relying more on cash management bills, though such measures are only temporary.

“Once these steps have been taken, no remaining legal and prudent measures would be available to create additional headroom under the debt limit, and the United States would begin to default on its obligations,” Treasury Secretary Timothy Geithner told lawmakers last year, The Journal added.

The Treasury cannot raise the debt ceiling to avoid default, only Congress can and President Barack Obama has warned congressional Republicans not to use the borrowing limit as a bargaining chip amid fiscal cliff talks.

"I want to send a very clear message to people here: We are not going to play that game next year. If Congress in any way suggests that they're going to tie negotiations to debt ceiling votes and take us to the brink of default once again as part of a budget negotiation, which, by the way, we have never done in our history until we did it last year, I will not play that game," Obama told some of the nation's top CEOs at the Business Roundtable in Washington, according to ABC News.

"We've got to break that habit before it starts."

Editor's Note: The ‘Unthinkable’ Could Happen — Wall Street Journal. Prepare for Meltdown

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