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Treasury says US will hit debt limit in mid-Oct

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« on: August 26, 2013, 06:42:05 pm »

http://finance.yahoo.com/news/treasury-says-us-hit-debt-201132681.html
8/26/13
Treasury says US will hit debt limit in mid-Oct

Treasury secretary says US will hit debt limit in mid-Oct, urges Congress to raise it


WASHINGTON (AP) -- Treasury Secretary Jacob Lew has told Congress that the government will run out of money to pay its bills in mid-October unless lawmakers raise the country's borrowing limit, which is capped at $16.7 trillion.

Lew said in a letter to Speaker John Boehner released Monday that the government is running out of accounting maneuvers it has used to avoid hitting the borrowing limit. He pressed Congress to act so Treasury can keep paying the government's bills.

Lew said it's impossible for Treasury to predict exactly when borrowing limit will be reached. But he warns that if action isn't taken soon, the government could be left with $50 billion in cash by mid-October. He says that wouldn't be enough to cover Social Security payments, military personnel salaries, Medicare and other programs for an "extended period."

Earlier this year, Congress temporarily suspended the borrowing limit so lawmakers could focus on other budget debates. Treasury has kept the government operating for several months through its bookkeeping maneuvers. A smaller deficit this year has also helped.

The government is spending more than it takes in, running up annual deficits in excess of $1 trillion in each of the past four budget years. It has been borrowing the difference to meet its obligations.

Republicans want to reduce future deficits by cutting back sharply on spending. Democrats have proposed a mix of spending cuts and tax increases, which Republicans strongly oppose. The issue awaits resolution when lawmakers return from the recess.

Congress last passed legislation to increase the borrowing limit in the summer of 2011 after a months-long negotiation between President Barack Obama and top lawmakers like Boehner. Republicans forced Obama to accept about $2 trillion in spending cuts over the coming decade in exchange for a like-sized increase in the borrowing limit.

Obama says he won't negotiate this time around and says Congress should fund the spending it has previously approved.

Many Republicans want to use upcoming budget deadlines to mount an assault on Obama's signature health care law. Top House Republicans could use the borrowing limit measure as a way to derail "Obamacare," though the White House and top Senate Democrats say that's a nonstarter.
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« Reply #1 on: August 27, 2013, 05:20:11 am »

They hit that mark months ago...

100 Days: Treasury Has Kept Debt Frozen at $16,699,396,000,000

The Treasury Department’s latest official daily accounting of the U.S. government’s receipts, expenditures and borrowings--released this afternoon at 4:00 p.m.--indicates that the legally limited debt of the federal government has now been exactly $16,699,396,000,000 for 100 straight days.

The Daily Treasury Statement released today showed the status of the government’s accounts as of the close of business on Friday, Aug. 23. Because the Treasury does no business over the weekend, the federal government’s debt did not change on Saturday or Sunday.

The statement for Aug. 23 said the federal debt subject to the legal limit set by Congress was $16,699,396,000,000—or $25 million below the current limit of $16,699,421,000,000. Every Daily Treasury Statement since May 17 has also shown the legally limited debt at $16,699,396,000,000, or $25 million below the limit.

During the 100-day period from Friday, May 17 to Sunday, Aug. 25, according to the Treasury, the legally limited debt of the federal government did not change.

On May 17, Treasury Secretary Jack Lew sent House Speaker John Boehner a letter indicating that the Treasury was then hitting the legal limit on the debt and that he would begin using “extraordinary measures” to allow the government to continue borrowing money without exceeding that limit.

“In total, the extraordinary measures currently available free up approximately $260 billion in headroom under the limit, as described below,” said an appendix to Lew’s letter.

Among the “extraordinary measures” Lew said he could take to create this “headroom” under the debt limit were: 1) not investing new money from the Civil Service Retirement and Disability Fund (CSRDF) in U.S. Treasury securities, which he said would create $6.4 billion in “headroom” per month, 2) not reinvesting $58 billion ion Treasury Securities held by the CSRDF that would be maturing and not reinvesting $16 billion in interest owed to the fund, which would create $74 billion in headroom, 3) suspending the routine daily reinvestment of $160 billion in special Treasury securities held by the Federal Employees’ Retirement System Thrift Savings Plan, which would create another $160 billion in headroom, and 4) suspending the routine daily reinvestment of Treasury securities held by the government’s own Exchange Stabilization Fund, which would create another $23 billion in headroom.

In a subsequent letter sent to House Speaker John Boehner on Aug. 2, Secretary Lew said he had originally calculated that the Treasury would stop using the extraordinary measures on Aug. 2. But on that day, he said his new estimate was that the Treasury would keep using extraordinary measures, and thus keep borrowing without running over the legal limit, until Oct. 11.

“I have determined that a ‘debt issuance suspension period,’ previously determined to last until August 2, 2013, will continue through October 11, 2013, the last day that Congress is expected to be in session before the Columbus Day recess,” wrote Lew.

In a new letter that he sent to Speaker Boehner today, Lew estimated that the Treasury can keep borrowing until “the middle of October” until it runs out of headroom.

“Based on our latest estimates, extraordinary measures are projected to be exhausted in the middle of October,” Lew wrote.

Lew told Boehner in this letter: “Moreover, it is not possible for us to estimate with any precision the date on which Treasury would exhaust its cash in this situation. The rate at which cash will be drawn down depends on factors that are inherently variable and irregular, including the unpredictability of tax receipts, changes in expenditure flows under sequestration and the willingness of investors to re-invest in, or ‘roll-over,’ Treasury securities.”

For the last 100 days, there has been no variability at all in the federal government debt subject to the legal limit: It has remained precisely $16,699,396,000,000.

Between now and mid-October when Lew expects to exhaust the extraordinary measures he is now using to keep the debt at that number, Congress and the administration will negotiate the spending bill or bills that are needed to fund the government after this fiscal year ends on Sept. 30.

Thus, under Lew's current estimate, the administration and Congress could negotiate new spending bills first—before the exhaustion of the Treasury’s “extraordinary” measures requires them to negotiate a new legal limit on federal borrowing.

- See more at: http://cnsnews.com/news/article/100-days-treasury-has-kept-debt-frozen-16699396000000#sthash.1yuIc22P.dpuf
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« Reply #2 on: October 09, 2013, 07:40:09 pm »

http://www.reuters.com/article/2013/10/09/usa-fiscal-plans-idUSL1N0HZ15820131009
10/9/13
U.S. Treasury, Fed planning for possible default -source

* Contingencies eyed if Congress fails to raise debt limit

* Treasury, Fed officials focused on default options

* Top Republican says Congress should see plans

* Officials stress failure to raise debt limit disastrous

By Tim Reid and Jonathan Spicer

WASHINGTON/NEW YORK, Oct 9 (Reuters) - U.S. Treasury and Federal Reserve officials worried about the growing possibility of a catastrophic default are crafting contingency plans to mitigate the economic fallout if Congress fails to extend America's borrowing authority, a source familiar with the plans said.

With just eight days before the Treasury Department says the U.S. will hit its $16.7 trillion borrowing limit, lawmakers and the White House remain far from a deal to extend it. Officials are examining what options might be available to calm financial markets if a U.S. debt payment is missed.

The specifics of their planning remain unclear, but the source said an area of special focus is a key bank funding market known as the tri-party repurchase agreement, or repo, market, where banks often use Treasury bills, notes and bonds as collateral for short-term loans from other banks and big money market funds.

Some of the earliest alarm bells for the 2008 financial crisis emerged from this market, and on Wednesday interest rates demanded for accepting some T-bills as collateral shot to the highest in five months. Were the repo market to seize, easy access to cash by banks to meet short-term funding needs could be jeopardized, and that could have far-ranging implications for credit markets and the economy.

The source, who asked not to be identified, said officials refused to divulge details of the plans because they do not want to suggest to investors and Republican Congress members that the U.S. government can muddle through if the debt limit is not raised. Officials insisted there was no way to avoid an eventual default if the debt limit is not raised.

On Thursday, U.S. Treasury Secretary Jack Lew is scheduled to testify before the Senate Finance Committee and is likely to be grilled about the contingency plans by Senator Orrin Hatch, the panel's top Republican.

The source said officials believe their plans can only try to mitigate fallout they expect to be catastrophic if Congress fails to raise the debt limit by Oct. 17, the date Treasury estimates it will run out of additional borrowing authority.

Against that anxious backdrop, officials are trying to gauge which Treasury securities pledged as collateral would cause the most concern in a default, the source said.

Many of the discussions are between Treasury officials in the Office of Debt Management and the Federal Reserve Bank of New York, which acts as the government's agent in the markets. The New York Fed's Fedwire Securities Service is used to settle loans in the $5-trillion repo market.

Spokeswomen for the Treasury and the New York Fed declined to say if contingency plans were being discussed or in place. The Treasury representative referred to remarks made by Lew in a recent letter to Congress. Lew said: "There are no other legal and prudent options to extend the nation's borrowing authority."

In another recent letter to Congress, Lew wrote: "Any plan to prioritize some payments over others is simply default by another name." He added: "There is no way of knowing the damage any prioritization plan would have on our economy and financial markets."

In the run-up to the 2011 debt-limit crisis, the Treasury looked at a range of options including delaying payments, asset sales and prioritizing payments, according to an inspector general's report last year.

According to the report, "Treasury officials determined that there is no fair or sensible way to pick and chose among the many bills that come due every day." The U.S. Treasury makes roughly 80 million payments a month.

The Securities Industry and Financial Markets Association, a trade group that represents hundreds of securities firms, banks and asset managers, said last week it has drawn up plans that might make a debt default less chaotic.

These plans would hinge on Treasury giving a day's advance notice that it would be missing a scheduled payment. This would allow dealers to configure systems to handle defaulted securities so they still might be used in transactions, including in the repo market.

The trade group's working presumption was that the Treasury, each night before it believed it would miss a payment, would announce that it would pay creditors one day late, according to SIFMA Managing Director Rob Toomey.

Already signs of stress are evident. Overnight interest rates in short-term funding markets shot higher on Wednesday as default worries spread. Traders in the repo market said some money funds and banks are starting to refuse to accept T-bills maturing in coming weeks as repo collateral. [ID: nL1N0HZ0VS]

On Tuesday night, Hatch, sent a letter to Lew and other members of the government's Financial Stability Oversight Council, demanding to know what contingency plans are in place in the event of a default.

The letter referred to minutes of a Fed video conference meeting with Treasury officials on Aug. 1, 2011, at the height of the last debt limit crisis.

Those minutes reveal that in that meeting, Treasury and Fed officials discussed contingency plans that had been developed in the event of a default.

Those contingencies, according to the minutes, included "plans that the Federal Reserve and the Treasury had developed regarding the processing of federal payments."

The 2011 backup plan also included "possible actions that the Federal Reserve could take if disruptions to market functioning posed a threat to the Federal Reserve's economic objectives."
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