–Updating to Add Further Details on Extraordinary Measures Available
–After May 16, Approximately Eight Weeks of Headroom to Delay Default

By Brai Odion-Esene

WASHINGTON (MNI) – Treasury Secretary Tim Geithner announced Monday
that Treasury expects to hit the debt limit “no later” than May 16, and
after that has only about eight weeks of flexibility to avoid default.

In a letter to Senate Majority Leader Harry Reid, as well as other
leaders from both parties on the Hill, Geithner said if Congress fails
to increase the debt limit by May 16, the Treasury has the authority to
take “certain extraordinary measures” to temporarily postpone a default.

These actions, however, would be exhausted after approximately
eight weeks, “meaning no headroom to borrow within the limit would be
available after about July 8, 2011.”

At that point the Treasury would have no remaining borrowing
authority, and the available cash balances would be inadequate, the
Treasury Secretary said.

“As Secretary of the Treasury, I would prefer to avoid resorting to
these extraordinary measures,” Geithner said. These measures “only
provide a limited degree of flexibility.”

The extraordinary measures currently available are: suspending
sales of State and Local Government Series Treasury securities;
determining that a “debt issuance suspension period” exists, which would
permit the redemption of existing, and the suspension of new,
investments of the Civil Service Retirement and Disability Fund;
suspending reinvestment of the Government Securities Investment Fund;
and suspending reinvestment of the Exchange Stabilization Fund.

The Treasury’s projection is based on the expected level of tax
receipts, the timing of its commitments and obligations over the next
several weeks, and its judgement concerning the level of cash balances
needed to operate.

In a separate appendix provided by the Treasury, the department
noted that while on average, the public debt of the United States
increases by approximately $125 billion per month, in total, the
extraordinary measures free up approximately $165 billion in headroom
under the limit before June 30, 2011.

In addition, if the United States does not exhaust the $165 billion
before June 30, 2011, the law governing the CSRDF permits Treasury to
take one more action on June 30, which would create an additional $67
billion in headroom on that date.

In its last update on March 1, the Treasury had estimated it would
hit the debt limit between April 15, 2011 and May 31, 2011, but Geithner
said his department “can now make that projection with more precision.”

“Although these projections could change, we do not believe they
are likely to change in a way that would give Congress more time to
act,” Geithner warned in the letter.

Repeating his warnings about the catastrophic effect that a
failure to increase the debt ceiling would have on the U.S. — a
financial crisis “potentially more severe” than that of 2008 — Geithner
also shot down many proposals suggested by members of Congress as
alternatives to raising the debt limit.

Selling the Treasury’s financial assets “is not a viable option,”
he said, warning that to attempt a “fire sale” of financial assets
“would be damaging to financial markets and the economy and would
undermine confidence in the United States.”

Selling the nation’s gold would also undermine confidence, Geithner
continued, while a rush to sell other assets would not only impose
losses on the taxpayer, but damage the value of similar assets held by
private investors.

All this “without generating sufficient revenue to make an
appreciable difference in when the debt limit must be raised,” he said.

It would also not be possible to avoid raising the debt limit by
cutting spending or raising taxes, he said, noting that because of past
commitments by Congress, immediate cuts in spending or tax increases
cannot make the necessary cash available. And, reductions in future
spending commitments cannot supply the short-term cash needed.

“In order to avoid an increase in the debt limit, Congress would
need to eliminate annual deficits immediately,” Geithner said.

“As a consequence, given that Congress has imposed on itself the
requirement for periodic increases, there is no alternative to enactment
of an increase in the debt limit.”

** Market News International Washington Bureau: 202-371-2121 **

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