Debt Ceiling Deadline Pushed Back
Yesterday, the National Debt jumped another $13 billion dollars upping it to $14.334 trillion. That pushes it $40 billion above the official debt ceiling of $14.294 trillion.
Warning on 5/2/2011 that failing to raise the debt ceiling would “have a catastrophic economic impact”, Treasury Secretary Tim Geithner said beginning tomorrow the government is resorting to extreme measures to push back a deadline from May 16 to August 2nd for when the federal borrowing debt ceiling must be raised before the government risks defaulting on its debts.
This is reported in these stories:
We are pushing the limit right now today. How then is the deadline being pushed back and what does it mean?
Take a Letter, Maria!
Geithner explains all this in a letter sent to Congress:
“Secretary Geithner Sends Debt Limit Letter to Congress“
– 5/2/2011, Treasury Notes, U.S. Department of the Treasury
How is the Debt Ceiling Limit Deadline Being Pushed Back?
In the letter to Congress Geithner says:
” This letter is to inform you of the extraordinary measures the Treasury Department will begin taking this week in anticipation of the date the debt limit will be reached, and to provide an updated estimate of the Department’s ability to use these measures to preserve lawful borrowing authority without exceeding the debt limit.”
According to Geithner those measures are:
- Suspend issuing SLGS Treasury securities
- Borrow from the Civil Service Retirement and Disability Fund(CSRDF)
- Suspend all CSRDF investments
- Suspend daily reinvestment of Treasury securities held as investments
- Suspend some investments in the Federal Employees’ Retirement System
Geithner further says:
“as a result of stronger than expected tax receipts, we now estimate that these extraordinary measures would allow the Treasury to extend borrowing authority until about August 2, 2011”.
What are these “extreme” measures, anyway?
SLGS(State and Local Government Series) are special purpose Treasury securities issued to state and local governments primarily to fund infrastructure improvements.
In other words, cash strapped state and local governments will have to put off capital improvements until the debt ceiling gets raised. These securities are subject to the debt ceiling and that is why they are being stopped.
In addition to that, the Treasury is going to borrow money from the Civil Service Retirement and Disability Fund(CSRDF) and the Federal Employees’ Retirement System Thrift Savings Plans.
It’s complicated, but they are borrowing from these two entities by stopping issuance of securities and reinvestments the Treasury pays for.
In other words, once again the federal government is robbing Peter to pay Paul.
The reason it involves two obscure funds this time is because the Federal government long ago robbed all the money out of the biggies, like the Social Security and Medicare Trust funds. Now they are down to robbing from the smaller obscure funds it manages… or, should we say, MISmanages.
Officially, the government is only temporarily borrowing from itself to help get it through a tight squeeze until the debt ceiling gets raised.
In National Debt lingo that type borrowing is called “Intragovernmental Holdings” and rates a separate listing from “Debt Held by the Public”. Unfortunately for the “public”, it is responsible for BOTH debts.
Why does it matter now?
Sadly, the federal government has been playing the borrow from yourself shell game for decades and it is finally catching up to us.
The cupboard is bare… and now we are ripping out the paper lining.
There are three big reasons why it matters now but didn’t before…
- The National Debt is right at 100% of GDP and rising
- The interest paid on the National Debt has become ginormous
- The federal government alone is spending over 20% of the entire GDP
The federal government is taking so much money out of the national economy – GDP – that it is strangling the private sector to the point that it chokes off investment that otherwise would be used to create jobs which, itself, is what drives national prosperity.
With the National Debt so high compared to the GDP it becomes very difficult to pay down.
The interest payment on the National Debt has become so large that it is a significant drain on the federal yearly budget, thus reducing government’s ability to pay for essential services.
The federal government is sucking more and more wealth out of the national economy. Left unchecked capitalism will be smothered and the United States will relegate itself to an increasingly poor welfare state.
This nation has reach critical mass. Either we take immediate steps to reverse our burgeoning debt and spending or prosperity, as we know it today, will become a thing of the past.