debt ceiling 2011
The U.S. Treasury, in order to avoid default, has resorted to an eyebrow-raising move: it has borrowed from the federal employee pension fund as the country nears its debt ceiling.
The U.S. government stopped investing in the federal employee pension fund Tuesday "to avoid breaching the statutory debt limit," according to a letter Treasury Secretary Timothy Geithner sent to Congress.
Geithner said that the move will free up some $156 billion in borrowing authority, while policy leaders in Washington wrangle over raising the $16.4 trillion debt limit.
Geithner promised the fund would be "made whole once the debt limit is increased," and maintains that federal employees and retirees would not be affected by the action.
But an IOU from the federal government isn't very settling for those relying on the fund for retirement.
Why You Should Ignore the Coming Debt Ceiling Debate
Under the guise of yet another debt ceiling debate, Republicans and Democrats will spend much of the week demonizing each other on the Washington stage.
But don't be fooled. This so-called debate will be nothing more than a planned-in-advance sideshow to supply each side with 2012 election campaign fodder.
The deal put in place on Aug. 2 essentially guaranteed that the limit on the U.S. national debt would be raised to $16.4 trillion in January. That means any sound and fury that emanates from Washington this week over raising the debt limit will signify nothing.
"It's pro-forma. They already made a deal to raise the debt ceiling last time around," said Shah Gilani, Money Morning Capital Waves Strategist and author of the Wall Street Insights & Indictments newsletter. "The President has to ask for the increase -- which makes it look like he caused it -- and the Republicans get to display anger that "here we are again.' But it's a game they agreed to earlier."
The deal in August intentionally split the debt ceiling increase into three separate requests to set up these faux debates for public consumption.
U.S. President Barack Obama did his part on Thursday by making a formal request for the $1.2 trillion increase in the debt limit.
That was the cue for Republicans in the House of Representatives to draft a "resolution of disapproval" which they will debate and vote on this week. And given that the GOP has a majority in the House, the resolution is guaranteed to pass.
In this play's next scene, the Democratic-controlled Senate rejects the resolution, which allows President Obama's requested debt ceiling increase to take effect by default - just as all sides envisioned back in August.
And even if a few rebellious Democratic Senators vote with their Republican colleagues, President Obama can veto the resolution. With the odds of Congress overriding a veto near zero, the debt ceiling increase is pretty much a lock.
But the show must go on.
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