Treasury Department Will Tap Federal Employee Pension Fund

From Health and Welfare news 12/27/2012, By  ,
U.S. will hit debt limit on Dec. 31, Treasury Department says

The U.S. government will hit the
$16.4 trillion federal debt limit Monday and turn to “extraordinary
measures” to continue borrowing, the Treasury Department said Wednesday,
beginning a countdown until Congress either passes legislation to allow
for more borrowing or the government defaults on its debt.

In a letter to Congress, Treasury Secretary Timothy F. Geithner
said that although the debt ceiling would be reached Dec. 31, the
government could buy roughly two months’ more time before it would be
unable to meet all its obligations.

The debate over the debt ceiling is likely to be another flash
point in the capital’s tumultuous negotiations over taxes and spending —
even if lawmakers are able to pass a measure to avoid a series of deep
spending cuts and sharp tax increases set to take effect at the end of
the year.

President Obama has demanded that the debt limit be
taken off the table as a negotiating point, but Republicans say it is an
important piece of leverage needed to force spending cuts and restrain
the growth of government. It was the debt-limit debate in the summer of
2011, when the nation came within days of default before a deal was
struck, that led to the legislation that has helped create the year-end
“fiscal cliff.”

How and whether the fiscal cliff is resolved will affect how much time the Treasury has in pushing back the date of default.

If
the nation goes over the fiscal cliff, two forces will work against
each other. Taxes would rise and spending would be cut, requiring less
U.S. borrowing and potentially delaying default. Higher unemployment and
a recession would also be likely, depressing tax receipts and requiring
more borrowing.

In contrast to the fiscal cliff, defaulting on
the debt would cause an immediate financial earthquake, probably causing
intense volatility in the markets given the special role played by U.S.
government debt.

The federal government borrows about
$100 billion a month, and Geithner’s letter to Congress said undertaking
“extraordinary measures” — as the Treasury did in 2011 — could create
about $200 billion of room to continue borrowing.

“However,” he
wrote to lawmakers, “given the significant uncertainty that now exists
with regard to unresolved tax and spending policies for 2013, it is not
possible to predict the effective duration of these measures.”

As
part of these efforts, the Treasury will suspend on Friday a program
that helps states and localities manage their borrowing, freeing up
$4 billion to $17 billion to spend elsewhere.

Then, after Monday,  Treasury can tap a range of federal funds that benefit government
employees — most critically, the money-market fund in which many federal
employees invest as part of their thrift savings plans. These efforts
could create $185 billion in borrowing space.

Federal employees would be unaffected, as long as Congress ultimately raises the debt limit by the final deadline.

Finally, the Treasury can tap a fund used to buy and sell foreign currencies
known as the exchange stabilization fund, which would open up about
$23 billion in headroom.