Treasury Begins Extraordinary Measures

Update 5/16: Today, Treasury has reached the legal limit on how much debt it can issue at $14.294 trillion. Beginning today, the Treasury is launching an additional measure to avoid default: suspend reinvestments and issuances of Treasury securities in certain federal pension funds. Furthermore, in a letter to Senator Bennet (D-CO) on Friday, Secretary Geithner says that even a short term default on the debt limit would trigger a "double-dip" recession with "irrevocable damage" on the economy.

Update 5/6: Treasury has begun to implement extraordinary measures, starting with halting the issuance of State and Local Government Series of Treasury Securities.

5/3: Yesterday, Treasury Secretary Timothy Geithner sent a letter to Congress on the debt limit reporting that the Treasury will start this week to implement measures to delay the U.S. from defaulting on its obligations (additionally, Treasury now has a website offering information on the debt limit).

Using these measures, the Treasury is now estimating that it will be able to delay default until August 2, 2011 -- an extension from an earlier estimate of July 8, 2011, mainly stemming from larger than expected revenue. Of course, this new date is still subject to change. The May 16, 2011 estimate for when the U.S. will reach the debt limit without action from Congress remains unchanged.

The measures the Treasury will employ will act to slow the increase of US debt. According to the most recent letter, Treasury will:

• Suspend issuing State and Local Government Series Treasury Securities
• Redeem existing securities in the Civil Service Retirement and Disability Fund and stop issuing new ones
• Suspend daily reinvestment of Treasury securities by the Government Securities Investment Fund of the Federal Employees' Retirement System Thrift Savings Plan
• When necessary, suspend daily reinvestment of Treasury securities held as investments by the Exchange Stabilization Fund

As Treasury points out, it is imperative that the debt limit be raised -- a default would have significant ramifications on the US and global economy and would do nothing to decrease the national debt. As CRFB said in our paper on Responsible Approaches to Increasing the Debt Limit, the debt limit must be raised, but using it as a mechanism for reaching a larger budget deal would still be beneficial (and as CRFB President Maya MacGuineas said in an Op-Ed last week, tying the debt limit to a real budget trigger could also be a good idea).