We are 12 days from hitting the $14,300bn US debt ceiling. And, perhaps more importantly, just a few months away from when the Treasury will run out of accounting moves that can prevent a default.
And if you’re wondering what these accounting moves are exactly, look no further.
Deutsche Bank’s Alex Li and Daniel Sorid have a handy list:
* Suspend sales of State and Local Government Series (SLGS) securities;
* Suspend reinvestment of the Government Securities Investment Fund (G-Fund);
* Suspend reinvestment of the Exchange Stabilization Fund (ESF); and
* Determine that a “debt issuance suspension period” exists; permit redemption of existing, and suspension of new, investments of the Civil Service Retirement and Disability Fund (CSRDF).
Now, the Treasury already announced that it would suspend SLGS issuance on May 6. And Treasury secretary Tim Geithner also said earlier this week that if Congress doesn’t increase the debt limit by the May 16 deadline he’ll declare that “debt issuance suspension period” and suspend the daily reinvestment of Treasury securities held as investments by the G-fund (but not yet the ESF), as per the above.
In fact, Geithner’s made a (longer) list of his own in which he details the “extraordinary measures” his department is prepared to take to prevent a US default. The Treasury secretary now estimates that the US can squeeze by until August 2 of this year — about three months, or 90 days.
Of course, there’s another debt-delay tactic that’s been floated — though not (yet) by Geithner.
Here’s Deutsche Bank again:
The ideological debate over raising the debt ceiling rages on. We are an estimated 17 days from bursting through the $14.3 trillion ceiling, and an estimated 70 days until the Treasury runs out of accounting moves that can prevent a default. Former Treasury officials have come out swinging, with Paul O’Neill, George W. Bush’s first Treasury secretary, calling opponents of raising the ceiling “our version of al-Qaeda terrorists.” Another former Treasury official has floated an idea that could theoretically forestall default for even longer: a new law that prioritizes interest payments over all other expenses. Writing in the Wall Street Journal, Emil Henry Jr., a former assistant secretary of the Treasury from 2005 to 2007, says this move could avoid a technical default, theorizing that “near-term economic dislocation might be the painful medicine necessary for long-term health.”
But Deutsche (like Geithner so far) is having none of it:
Reprioritizing interest payments above other spending is, for one, politically infeasible. Congress will have a tough time explaining why foreign bond holders are receiving their payments when social services are being cut off to American citizens. Even if it did pass, the move may avoid a technical default but do little to appease markets, as it would permit the political theater on the debt ceiling to drag on for long. Avoiding technical default through reprioritizing interest payments is certainly a better result than a default. But to avoid market dislocation, we think an official increase in the debt ceiling is the only tenable solution. The longer a band-aid like reprioritization can last, the more uncomfortable markets may become with the idea.
Others very much disagree.
Related links:
US Treasury pushes back default timing – FT
Why you should blame Tim Geithner, not the GOP, if the US defaults – Business Insider
The debt ceiling and default - Free Exchange