Treasury Secretary Timothy F. Geithner said on Monday that he will begin to undertake emergency measures this week to avert a potential default on the federal debt. President Obama and Geithner have called for a vote on the debt limit that is not linked to any actions. The measures include a suspension of a Treasury program that helps state and local governments manage their debts, and borrowing money from a pension fund from federal workers. Largely 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, approximately three weeks later than was forecast last month. In a letter to Congress, the Treasury secretary renewed his warning that a failure to raise the $14.3 trillion debt limit “would have a catastrophic economic impact.” But he also acknowledged that it could take weeks for Congress to vote to do so. A broad range of government payments would have to be stopped, limited or delayed, including military salaries, Social Security and Medicare payments, interest on debt, unemployment benefits and tax refunds. A default on the Nation’s legal obligations would lead to sharply higher interest rates and borrowing costs, declining home values and reduced retirement savings for Americans. Default would cause a financial crisis potentially more severe than the crisis from which we are only now starting to recover. I want to emphasize that, contrary to a common misperception, the debt limit has never served as a constraint on future spending, nor would refusing to increase the debt limit reduce the obligations the country has already incurred. But, it added, “Business Roundtable believes a debt limit increase is simply unavoidable and necessary to protect the long-term health of our economy and ensure America’s international credibility.”
– Tim Geithner is about to enact some “extraordinary measures” in anticipation of Congress’ failure to boost the debt ceiling by May 16, he wrote in a pointed open letter to John Boehner yesterday. These measures, coupled with “stronger than expected tax receipts” will allow him to stay afloat until Aug. 2, about 25 days longer than he estimated last month, according to the Washington Post. “While this updated estimate in theory gives Congress additional time to complete work on the debt limit, I caution strongly against delaying action,” Geithner writes. “The economy is still in the early stages of recovery, and financial markets here and around the world are watching the United States closely.” Geithner’s “extraordinary measures” will include ceasing to issue securities to help state governments manage their budgets, and declaring a “debt issuance suspension period,” preventing several Treasury maneuvers.