The Treasury secretary has told Congress that his department will begin using “extraordinary measures” to stave off hitting the debt ceiling on Dec. 31, adding more pressure to the ongoing fiscal cliff talks between Congress and the White House.
Although Treasury has known for months that the debt ceiling could be reached in December, Timothy Geithner’s two-paragraph letter to Congress underscores how much the negotiations over Bush-era tax cut extensions and sequestration have stalled regular government activity.
The U.S. is approximately $95 billion away from reaching the legal borrowing limit of $16.4 trillion – a limit set by Congress in 2011. If the U.S. government were to exceed that limit, it would be unable to issue new debt to finance payments on existing debt.
To avoid such an outcome, Geithner informed Congress on Wednesday that Treasury “will shortly begin taking certain extraordinary measures authorized by law to temporarily postpone the date that the United States would otherwise default on its legal obligations.”
These measures would give the White House and lawmakers more time to reach a deal that would increase the government debt limit. The Treasury Department would do this by taking some measures to create $200 billion in headroom.
Among the extraordinary measures are suspending the sales of state and local government Treasury bonds, fiddling with federal employee pension funds, and postponing the purchase and sale of foreign currency.
With these measures, the Treasury is expecting to delay reaching the debt ceiling for an additional two months. But given the uncertainty of reaching an agreement on the fiscal cliff before the end of the year, Geithner said that it is impossible to predict the duration of the delay because of the difficulty in estimating what government expenditures and tax revenue will be in 2013.
“If left unresolved, the expiring tax provisions and automatic spending cuts, as well as the attendant delays in filing of tax returns, would have the effect of adding some additional time to the duration of the extraordinary measures,” he wrote.
Confirming Geithner’s uncertainty over the duration of the delay, the Bipartisan Policy Center, a think-tank in Washington, mentioned in a report last month that the government could run out of money as soon as February even after using the extraordinary measures. In addition, the think-tank noted that February is not a good month because it typically has very high government expenditures.
The U.S. government does not collect enough revenue to pay, so it has to borrow the difference. The government can do this in two ways: it can borrow money from investors by issuing Treasury bonds, and it can borrow from itself, mostly from Social Security revenue. On average, the U.S. government has to borrow $100 billion per month.