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US Treasury to take steps to avoid borrowing limit Vote_lcap68%US Treasury to take steps to avoid borrowing limit Vote_rcap 68% [ 178 ]
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FINANCIAL CHRONICLE™ » DAILY CHRONICLE™ » US Treasury to take steps to avoid borrowing limit

US Treasury to take steps to avoid borrowing limit

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K.Haputantri

K.Haputantri
Co-Admin
US Treasury to take steps to avoid borrowing limit
December 27, 2012, 8:18 pm
The Island

WASHINGTON (AP) -- The U.S. Treasury Department will begin taking steps on Friday to delay hitting the government's $16.4 trillion borrowing limit on Dec. 31.

Treasury Secretary Timothy Geithner said in a letter Wednesday to congressional leaders that the department will use accounting measures to save approximately $200 billion. That could keep the government from reaching the limit for about two months.

The move comes as President Barack Obama and the GOP congressional leadership resume negotiations over how to avoid a series of tax increases and spending cuts, known as the "fiscal cliff," that are scheduled to take effect in the new year.

Obama has sought to include an increase in the borrowing limit in any agreement to avoid the cliff. But Speaker John Boehner and other Republican leaders have demanded concessions in return. The negotiations hit a stalemate last week. Obama and lawmakers are returning to Washington this week to try again.

Geithner says the negotiations over tax and spending policies make it difficult to predict how long he can delay reaching the borrowing limit. The absence of a specific timeframe may be intended to pressure Republicans to allow a debt limit increase in a potential budget deal.

For now, Treasury will take several steps to delay reaching the limit. Geithner said it will stop selling Treasury securities used by state and local governments to support their own sales of tax-exempt bonds. That will keep the department from accumulating more debt.

And the department will stop investing in government retirement funds.

The borrowing limit is the amount of debt the government can pile up. The government accumulates debt two ways: It borrows money from investors by issuing Treasury bonds, and it borrows from itself, mostly from Social Security revenue.

In 2011, Congress raised the limit to nearly $16.4 trillion from $14.3 trillion. Three decades ago, the national debt was $908 billion. But Washington spent more than it took in, and the debt rose steadily — surpassing $1 trillion in 1982, then $5 trillion in 1996. It reached $10 trillion in 2008 as the financial crisis and recession dried up tax revenue and as the government spent more on unemployment benefits and other programs.

In August 2011, the rating agency Standard & Poor's stripped the U.S. government of its prized AAA bond rating because it feared that America's dysfunctional political system couldn't deliver credible plans to reduce the federal government's debt. S&P decried American "political brinksmanship" and concluded that "the differences between political parties have proven to be extraordinarily difficult to bridge."

A year and a half later, the two political parties are still as deadlocked as ever.

Despite S&P's warnings and the political stalemate, investors still want U.S. Treasurys. Given economic turmoil in Europe and uncertainty elsewhere, U.S. government debt and U.S. dollars look like the safest bet around.

That is why the interest rate, or yield, on 10-year Treasury notes has fallen from 2.58 percent on Aug. 5, 2011 to 1.75 percent Wednesday.

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