After measures are exhausted, the government would default on debt and stop all entitlements: Geithner

U.S. to Take ‘Extraordinary’ Steps as It Nears Debt Ceiling

By Jeffrey Sparshott

The U.S. this week will start taking “extraordinary” steps to extend the federal government’s authority to borrow funds as it nears the national debt ceiling, Treasury Secretary Timothy Geithner said Monday.

Geithner early last month told lawmakers that the U.S. would hit the debt ceiling by May 16 and could default as soon as July 8.

“Because it appears that Congress will not act by May 16, it will be necessary for the Treasury to begin implementing these extraordinary measures this week,” Geithner said in letters to House and Senate leaders.

The latest steps will buy politicians more time than initially anticipated. Instead of running out of room July 8, Geithner said the Treasury Department now expects to be able to continue borrowing funds until Aug. 2.

“While this updated estimate in theory gives Congress additional time to complete work in increasing the debt limit, I caution strongly against action,” Geithner said.

Geithner has repeatedly asked Congress to raise the $14.294 trillion limit, warning that failure to act would force a U.S. default and an economic catastrophe.

Many Republicans and some Democrats first want a commitment to rein in spending and cut mounting budget deficits.

“I am not going to vote for any long-term extension of the debt [ceiling] unless there is a credible and serious plan to deal with the debt,” Sen. Kent Conrad (D., N.D.), chairman of the Senate Budget Committee, said on Fox News Sunday.

Geithner said the Treasury Department now expects to be able to continue borrowing funds until Aug. 2.

“While this updated estimate in theory gives Congress additional time to complete work on increasing the debt limit, I caution strongly against delaying action,” Geithner said.

Further measures would follow May 16. Geithner said he would declare a debt issuance suspension period for the Civil Service Retirement and Disability Fund, which would permit the Treasury to redeem existing Treasurys and suspend issuing new ones.

Treasury also would suspend daily reinvestment of Treasurys held as investments by the Government Securities Fund for the federal employees’ thrift plan.

Treasury also could later suspend daily reinvestment by the Exchange Stabilization Fund.

As of Thursday, total public debt subject to the limit was $14.231 trillion, leaving little headroom for the federal government.

After the extraordinary measures are exhausted, Geithner has warned that the government would stop or delay military salaries, Social Security and Medicare payments, interest on the debt and unemployment benefits.
[link to blogs.wsj.com]