Bloomberg News

Treasury Has Tools to Push 2014 Debt-Limit Deadline Past Feb. 7

October 17, 2013

President Barack Obama

U.S. President Barack Obama makes a statement at the State Dining Room of the White House on Oct. 17, 2013 Photographer: Alex Wong/Getty Images

The Treasury Department emerged from the fiscal fight in Congress with tools intact that will allow the U.S. to stay under the debt limit for a month or more after the ceiling is reinstated Feb. 7, budget analysts said.

President Barack Obama signed legislation today that reopened the government and allows the Treasury to sell bills, notes and bonds without exceeding the borrowing cap, which was $16.7 trillion before the new law suspended it until Feb. 7. After that, the department can avoid a breach by using accounting maneuvers, which some analysts say can provide about $200 billion to help fund operations until income-tax revenue arrives before the mid-April filing deadline.

“There is a 25 percent chance that the Treasury might be able to reach April 15 without a debt-ceiling increase,” Lou Crandall, chief economist at Wrightson ICAP LLC in Jersey City, New Jersey, wrote in a research report dated today. “If so, April tax receipts would push the debt-ceiling deadline into the latter part of the second quarter.”

The extra time may mean the next debt-limit showdown flares up closer to 2014 mid-term congressional elections, becoming an issue in primaries including the one between Senate Minority Leader Mitch McConnell, a Republican from Kentucky, and Tea Party candidate Matt Bevin, said Chris Krueger, a Washington analyst for Guggenheim Securities LLC.

All members of the 435-seat House and a third of the 100-seat Senate are up for reelection in November 2014.

‘Toxic’ Vote

“There is no more toxic political vote than one to raise the debt ceiling,” particularly in Republican primaries, Krueger said. “Many Republican House and Senate members will be looking over their right shoulder in fear of retribution for another vote to raise the debt ceiling just before their primary elections.”

The Treasury’s so-called extraordinary measures, which include suspending sales of non-marketable state and local government securities, have become ordinary over the past two decades. Administrations of both parties have used them to keep paying bills while Congress weighed debt-ceiling increases. House Republicans tried and failed to stop their use during the next fiscal battle, running into opposition from the Obama administration.

Treasury spokeswoman Brandi Hoffine declined to comment.

The exact amount of money freed up by the extraordinary measures depends on the time of year they are employed, according to Alec Phillips, an economist in the Washington office of Goldman Sachs Group Inc.

Extra Time

“In early 2013, the Treasury had around $200 billion in extraordinary measures and we assume they will have about the same in early 2014,” Phillips said in a note yesterday. In 2012, it took about five weeks starting from Feb. 7 for the debt subject to the limit to increase by $200 billion, and this year it took about four weeks from the same starting period, he said.

An extra dividend from the McLean, Virginia-based Freddie Mac might help the Treasury get beyond that period, Phillips said. The U.S.-owned mortgage financier, which has operated under federal conservatorship since it was seized in 2008, is sending the Treasury dividend payments as a condition of the rescue.

Besides suspending the state and local government securities, known as “slugs,” Treasury can also declare a “debt issuance suspension period,” which allows it to hold off investment of new amounts and redeem some existing Treasury securities in the Civil Service Retirement and Disability Fund.

That measure, and the suspension of daily reinvestment of Treasury securities held by the Government Securities Investment Fund of the Federal Employees’ Retirement System Thrift Savings Plan, were used in at least seven debt-limit impasses since 1995.

Earlier this week, Fitch Ratings put the U.S. AAA credit grade on ratings watch negative, citing the government’s inability to raise the debt ceiling in a timely manner.

To contact the reporters on this story: Kasia Klimasinska in Washington at kklimasinska@bloomberg.net; Ian Katz in Washington at ikatz2@bloomberg.net

To contact the editor responsible for this story: Chris Wellisz at cwellisz@bloomberg.net


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