u.s. debt ceiling 2013
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.
U.S. Debt Ceiling Deadline Prompts This Stern Warning from Obama
The U.S. debt ceiling deadline lies just a few weeks away, raising the prospect of the nation defaulting on loans, seeing its credit rating downgraded and being plunged into a recession.
And there's no sign U.S. President Barack Obama or congressional Republicans are ready to budge on their positions on what to do about the debt ceiling.
President Obama once again made his case for raising the debt ceiling during a White House press conference today (Monday) and faulted Republicans for what he portrayed as a misguided position.
"They will not collect a ransom in exchange for not crashing the American economy," President Obama said. "The full faith and credit of the United States of America is not a bargaining chip."
If the GOP lawmakers refuse to increase the U.S. debt ceiling - they're holding out for dollar-for-dollar spending cuts - the president said markets could "go haywire," government payments including Social Security and military personnel checks would be delayed and the economy would slide into recession.
"It would be a self-inflicted wound on the economy," President Obama said. "It would slow down our growth and tip us into recession. To even entertain the idea of this happening is irresponsible. It's absurd."
How this U.S. Debt Ceiling Tactic Could Backfire on GOP
Republicans begrudgingly agreed to higher tax rates for the wealthy in the fiscal cliff deal, so now they plan to fight harder to get their way with spending cuts by using a major economic concern as leverage: the U.S. debt ceiling.
The federal government officially surpassed the $16.4 trillion debt ceiling on Dec. 31 but accounting tricks will keep the government functioning for about two months, to the end of February. That's when Washington will have to raise the limit or it will see a repeat of the debt ceiling crisis the country endured in the summer of 2011.
This is where the GOP sees a major opportunity.
In order to force Democrats to approve more drastic spending cuts, Republicans will threaten to deny raising the U.S. debt ceiling, no matter how high the immediate cost to the U.S. economy.
"Our opportunity here is on the debt ceiling," Sen. Pat Toomey, R-PA, said on MSNBC after thefiscal cliff deal was reached. "We Republicans need to be willing to tolerate a temporary, partial government shutdown, which is what that could mean."
But that strategy might not work out as planned.
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Why the U.S. Debt Ceiling Debate is a Bigger Deal than the Fiscal Cliff
With the fiscal cliff deal behind us at last, the next big battle in Washington will focus on the U.S. debt ceiling, and the stakes are high.
The United States officially hit the $16.394 trillion U.S. debt ceiling Dec. 31. The debt now stands at about 73% of U.S. gross domestic product and will continue to rise over the next decade without major spending reforms.
Now the U.S. Treasury Department has decided to employ what Treasury Secretary Timothy F. Geithner calls "extraordinary measures" in the next two months to avoid actually defaulting on debt. Those measures include temporarily stopping the reinvestment of federal employees' retirement account contributions into short-term government bonds as well as other steps to discontinue debt issuance.
The new deadline for resolving the debt ceiling issue looms at the end of February, giving Congress little time to regroup after partly resolving the fiscal cliff.
"Do not forget that the fiscal cliff is only one of three upcoming problems in our ongoing fiscal madness," Money Morning Chief Investment Strategist Keith Fitz-Gerald said. "There's still the debt ceiling, sequestration and the complete lack of a budget to contend with. In other words, it's on to the next crisis now."
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