The Debt Ceiling Is Approaching Quickly And Once Again, The Fed Is Considering Extraordinary Measures To Buy Time To Avoid Default

Thursday, December 13, 2012 08:02
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The Debt Ceiling Is Approaching Quickly And Once Again, The Fed Is Considering Extraordinary Measures To Buy Time To Avoid Default

Tags: debt | defaults | Federal Reserve

The Fed is once again considering extraordinary measures. This time, it’s in reference to the debt ceiling.

 
The US Treasury will run out of money toward the end of this month if the debt ceiling is not raised. The current debt ceiling is $16.394 trillion. We are $67 billion away from bumping up against that cap.

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The debt ceiling has now become part of the fiscal cliff discussions. The White House is trying to manage the issue smoothly and avoid the 2011 debacle that led to US debt being downgraded by Standard & Poors for the first time in history.
 
The Treasury has considered selling assets, making across-the-board payment reductions, prioritizing payments and delaying payments as options to buy more time.
 
But none of those measures would protect the full faith and credit of the US, the American economy, or individual citizens from very serious harm.
 
The Treasury could:
  • Suspend sales of Slugs (State and Local Government series securities)
  • Suspend new investments in the Civil Service Retirement and Disability Fund and retract existing investments
  • Suspend investment in the G Fund (Government Securities Investment Fund)
  • Limit investments in the exchange-stabilization fund, a reserve account to facilitate foreign exchange transactions
 
The delayed payments are considered to be the least harmful delay tactic. And within a week or two, the Treasury is expected to begin to take one or more of these actions to hold off default until February or March.

 

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